Romania - Pig Production and Processing Project

Report No. 1500-RO Appraisal of Pig Production and FIL COPY Processing Project Romania June 27, 1977 Agricuitrual Credit and Agroindustries Division Projects Department Europe, Middle East and North Africa Region FOR OFFiCIAL USE ONLY Docurnert of the World Bank This document has a restricted distribution and may be.used by recipients only in the performance of their official duties Its contents may not otherwise he disclosed without World Bank authorization. CURRENCY EOUIVALENTS Leu 1 US$0.05 Lei 1,000 US$50.00 Lei 1,000,000 US$50,000 WEIGHTS AND MEASURES 1 millimeter (mm) 0.0394 inch (in) 1 meter (m) = 3.2808 feet (ft) 1 kilometer (k) = 0.6214 mile (mi) 1 square kilometer (k2) = 0.3861 square mile (mi2) 1 kilowatt (kw) 1.3410 horsepower (hp) 1 kilogram (kg) = 2.2046 pounds (lb) 1 ton (ton) = 2,204.6225 pounds (lb) ABBREVIATIONS BAFI Bank for Agriculture and Food Industry CAP Agricultural Production Cooperative EEC European Economic Community IAS State Agricultural Enterprise ICA Inter-Cooperative Association ICB International Competitive Bidding MA Ministry of Agriculture and Food Industry MFIT Ministry for Internal Trade MIT Meat Industrialization Trust ROMANIAN FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ......................... i-iii 1. INTRODUCTION ..................... ..................... II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR ..... 1 A. General ............ ......... ...... ....... 1 B. Resource Base and Agricultural Production Trends ......................................... 2 C. National Planning and Investment in Agriculture .........0*........... .. ...... 3 D. Pig Production ............. 5 E. Marketing and Processing ....................... 7 F. Input and Product Pricing 8 G. Pork Consumption ........................ 8 H. Pork Exports .................................. 10 III. THE BANK FOR AGRICULTURE AND FOOD INDUSTRY ......... 11 A. Tasks, Responsibilities and Powers ................. 11 B. Organization and Management ........ ........ 11 C. Fiscal Agency Operations ...................... 11 D. Financing Policies and Procedures ............. 12 E. Lending and Investment Operations ............. 13 F. BAFI-Financing of Pig Production and processing .................... 13 G. Sources of Funds .............................. 13 H. Financial Condition .... ........... ........... 14 I. Performance Under the Sadova-Corabia Agricultural Project ........................ 14 IV. THE PROJECT ..... .................. .. ....... 15 A. Objectives ............................... 15 B. Detailed Features ....... 15 C. Cost Estimates .............. ......... ....... 16 D. Financing .... ................................................ 18 E. Procurement ...... ............... .............. .. 19 F. Disbursement . ... .................. o ..... .... ..* .. 19 G. Environmental Impact ....................... 20 This report is based on the findings of an appraisal mission to Romania in November 1976, consisting of Messrs. E. P. Schertz, W. Nickel and W. Bertelsmeier (IBRD) and M. Walshe (Consultant). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (Continued) Paae No. V. PROJECT IMPLEMENTATION ................ 20 A. Organizational Management ..................... 20 B. Lending Policies and Procedures ............... 21 C. Accounts and Audits ...................... 22 D. Project Monitoring ............................ 22 E. Risk ........... .. .. .. .. .......* ....... 23 VI. BENEFITS AND JUSTIFICATION ................ ..... 23 A. Production, Markets and Prices ................ 23 B. Financial Results ............................. 24 C. Economic Analysis ....................24 VII. RECOMMENDATIONS ................................... .................... 25 ANNEXES 1. The Agricultural Sector 2. Marketing 3. The Banking Structure in Romania 4. Pig Production: Model: Pig Breeding/Fattening Unit - State Enterprise Model: Pig Breeding/Fattening Unit - Cooperative Model: Crossbred Gilt Production - State Enterprise Model: Crossbred Gilt Production - Cooperative 5. Livestock Slaughtering and Meat Processing: Model: Slaughterhouse and Processing Facility Model: Sausage Processing Facility 6. Project Procurement Projections 7. Total Project Cost and Investments by Year 8. Estimated Schedule of Bank Disbursements 9. Estimates of Project Receipts and Disbursements 10. Economic Analysis MAP IBRD 12669 APPRAISAL OF PIG PRODUCTION ANL 0CEi.u PaOJECI ROMANIA SUMMARY AND CONCLUSIONS i. This report appraises a project which represents a two-year tranche (1977-78) from Romania's 1976-80 National Development Program for the pig production and meat processing subsector. The proposed project would be nationwide in scope, representing the first Bank participation in Romanian agricultural development plan financing on a non-regionalized basis. The project would make a major contribution toward fulfillment of planned increases in domestic meat supplies to support efforts to achieve greater nutritional balance. Investments to expand the pig production and processing subsector are considered to be of high priority due to (a) the strong consumer preference for pork in increasing the meat content of diets, (b) the high level of production and processing technology and performance established in the country, (c) the satisfactory domestic feedgrain base, and (d) export experience and the relatively close proximity to export markets for exportable surpluses. Specifically, the project would aim to (a) develop a sufficiently large multiplier herd to support the industry; (b) produce animals of high genetic quality through the use of improved breeding stock and additional development of testing and selection centers; (c) continue reorganization of pig production activities into specialized, "industrial-type" complexes to capture managerial and technical economies of scale and to facilitate trans- feral of technical know-how throughout the subsector; (d) increase dispersion of production capacity throughout the country to meet more efficiently the consumption requirements of the population; (e) provide adequate slaughtering and processing capacity for anticipated pig production levels; and (f) install new meat processing units and modernize existing facilities in accordance with international sanitary standards and high operational efficiency. ii. The proposed project would include investments for (a) facilities and initial livestock for about 60 pig breeding/fattening complexes with an aggregate annual capacity of 1,500,000 pigs; (b) facilities and initial live-, stock for about 40 pig breeding farms with an aggregate annual production capacity of about 100,000 gilts to be used as breeding stock; (c) a pig farm modernization program designed to increase and renovate the production capacity of existing facilities; (d) a pig improvement and selection program extending and developing further the national breeding program involviag bie.. a: high, genetic quality; (e) construction of modern livestock slaughtering and meat processing facilities and specialized sausage processing plants; and (f) a modernization program for existing slaughterhouses and meat processing plants. Technology to be employed in project facilities is well established in Romania. Investment credit would be provided to State enterprises and cooperative complexes for the construction of buildings and installation of supporting infrastructure, acquisition of quality breeding animals, farm machinery, and vehicles, and erection of suitable feed storage units. All components under the project would be supported by technical service inputs including breeding and feed research and development, veterinary services, vaccine production and development, and meat inspection. With proposed investment in energy feed and protein development schemes, and with sufficient importation of protein materials to supplement domestic stocks, an adequate grain-protein base would be provided to support proposed incremental livestock production. Project facilities would be constructed and operated in conformity with Romania's high standards governing waste water treatment. iii. The total project cost would be 6,449 million lei (US$322.5 million) of which 22% or 1,425 million lei (US$71.3 million) would represent the foreign exchange component. The proposed Bank loan would finance this foreign exchange component. The Bank for Agriculture and Food Industry (BAFI) would finance 66% of the total, or 4,251 million lei (US$212.5 million), and the remainder of 778 million lei (US$38.9 million) would be provided by cooperative sub- borrowers out of their own funds. iv. BAFI would be the Borrower. The district offices of BAFI would have direct responsibility for financial and administrative execution of subprojects with assistance from the Ministry of Agriculture and Food Industry, research stations, and the Meat Inspection Service. Interest rates on project subloans would be set at existing rates charged by BAFI for similar investments--for cooperatives, 3% p.a.; and for State enterprises, 2% p.a. during construction and 4% p.a. after construction. Civil works construction would be carried out by State-owned construction enterprises on contract bases. Equipment and materials required for the project are estimated to cost US$112 million (including contingencies). Items totalling US$71 million, equivalent to the foreign exchange component of the project, would be procured under inter- national competitive bidding in accordance with Bank Guidelines. Project implementation would begin in 1977 and would be completed in four years. v. Annual incremental pork production resulting from project investments is expected to reach 208,100 tons (live-weight) at full development. Slaugh- tering and processing throughput capacities would be increased by 148,000 tons of pork, 32,400 tons beef, and 71,800 tons baby beef (live-weight). It is anticipated that incremental pork supplies will make major contribution toward fulfillment of planned increases in per capita meat consumption increases from 46 kg (1975) to 55-60 kg by the end of the 1976-80 Plan period, thereby enabling greater intake of high grade protein and improvement in nutritional balance. Incremental exports generated from the project would permit addi- tional foreign exchange earnings, principally in convertible currencies, and an improvement in Romania's balance of payments. In addition to meat output from project facilities, the economy would benefit from the nutritive value of manure produced and soybean meal imports foregone as a result of meat, blood, and bone meals generated under the project. The Romanian economy is expected to realize at least an 17% economic rate of return from total project investments. The project would create an estimated 9,000 full-time jobs in project facilities located throughout the country. As is customary in Romania, the project would include a detailed education component to up- grade skill levels. - iii - vi. Having received the assurances set forth in Chapter VII, the project is suitable for a Bank loan of US$71 million to the Bank for Agriculture and Food Industry under the guarantee of the Socialist Republic of Romania for a term of 15 years including three years of grace.  APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA I. INTRODUCTION 1.01 The Government of the Socialist Republic of Romania has requested the Bank's assistance in financing the Pig Production and Processing Project. The proposed project would increase pig production and meat processing capac- ities and would renovate existing facilities where technically and economically feasible. Project investments would be made on State enterprises and coopera- tive complexes. An incremental supply of 208,100 tons of live-weight pork would be generated as a result of project investments. The proposed project would be nationwide in scope, representing the first Bank participation in Romanian development plan financing on a non-regionalized basis. 1.02 Romania joined the Bank on December 15, 1972. The proposed project would represent the fourteenth Bank loan to Romania, bringing the lending total to nearly US$700 million. Previous loans to the agricultural sector account for a total of US$260.0 million: (a) Guirgiu-Razmiresti Irrigation Project (US$70.0 million), (b) Sadova-Corabia Agricultural Credit Project (US$30.0 million), (c) The agricultural components of the Flood Recovery Project (US$40.0 million out of a total US$60.0 million), (d) Rasova-Vederoasa Irrigation and Agricultural Development Project (US$60.0 million), and (e) lalomita-Calmatui Irrigation Project (US$60.0 million). The proposed loan would be the sixth in this sector. 1.03 The proposed project was identified and prepared by the Government. The project was appraised in November 1976 by a mission consisting of Messrs. E. Schertz, W. Nickel, W. Bertelsmeier (IBRD), and M. Walshe (Consultant). This report is based on their findings. II. COUNTRY BACKGROUND AND THE AGRICULTURAL SECTOR A. General 2.01 Romania, with a total land area of 237,500 km2, ha3 a t-t.1 p c- tion of 21.2 million (mid-1975 estimate) increasing at an annual rate of about one percent. In 1975 the rural population was estimated at 12.1 million (56.8%), in comparison with 12.5 million (67.9%) recorded in 1960. GNP per capita for 1975 was estimated at US$1,300 (World Bank Atlas methodology). 2.02 The country is endowed with an abundant supply of natural resources such as sources of energy, good soils, and exploitable irrigation potential, but Romania remains dependent on imports for several key raw materials, par- ticularly iron ore. The State manages resources allocation and product dis- tribution to achieve centrally determined social and economic development -2- objectives outlined in the country's five-year development plans and detailed for each year in annual plans. For further discussion of Romania's economy see Romania: Economic Memorandum, IBRD Report No. 818a-RO, December 3, 1975. 2.03 Although the agricultural sector ranks below the industrial sector in the allocation of investment funds, the sector does play an important role within the national economy. In 1975, agriculture accounted for 13% of social product 1/, 38% of the total labor force, 11% of the total fixed assets, and 23% of total exports. By providing an expanding food base for the increas- ingly urban population, raw materials for industrial production, a reserve labor pool for eventual utilization in other growth sectors, and funds for capital investment and convertible foreign exchange through exports, the agricultural sector has been an important contributor to the high rates of growth and capital formation recorded over the last decade. Over the 1965-75 period, social product 2/ in the agricultural sector increased by 50%, or by a compound rate of 4.1% p.a. Expansion of agricultural production has been achieved with reduced labor intensity, infusions of capital and improved technology, and increased utilization of material inputs, e.g. fertilizers and pesticides. Livestock production, growing at about 5.8% per year compared to three percent for crop production, represented 36.8% of gross total agricul- tural output in 1965 and 43% by 1975. Romanian agriculture has displayed a positive trade balance over the last 25-year period; the trade balance for agriculture rose from 412 million lei (US$20.6 million) in 1950 to 1,779 mil- lion (US$88.9 million) in 1975. Exports of agricultural products declined as a percentage of total exports from 54.7 to 26.8% over the 1950-75 period as production and exports of relatively higher valued industrial commodities expanded. B. The Resource Base and Agricultural Production Trends 2.04 Romanian agriculture benefits from relatively good soils, a climate which is seasonally suitable for production, and exploitable water resources. Out of a national total of 23.8 million ha, 14.9 million are employed in agricultural production. Of the agricultural total, arable land accounts for 65.2%, pasture 20.3%, meadowland 9.5%, and vineyards 5.0%. 2.05 Romania can be divided into three agro-climatic zones based on climatic factors, topography, soils, and other natural conditions influencing land use and agricultural performance (see Map). The Plains Zone located in the western and southern parts of the country, is especially well endowed with fertile soils.. Crop yields tend to be highest in this region, and livestock 1/ Social product is basically defined as the total output of material production generated at all stages of production. The production sector comprises those branches of the economy in which material goods are produced, circulated, and distributed for final use. 2/ In comparable 1963 prices. -3- activities, especially pig and poultry production, have been concentrated in this major grain belt. In 1974, 60.6% of the national pig herd was located within the 12 districts of the Plains Zone. The Foothills Zone, situated mainly to the north of the Plains Zone, is characterized by shallow and less productive soils. Only 20.6% of the national pig herd was located in this region in 1974. The Mountain and Tableland Zone includes districts in the northern and central parts of the country. It accounts for 50% of all pas- ture and meadowlands. The zone contained only 18.8% of the 1974 pig herd. C. National Planning and Investment in Agriculture 2.06 National planning in Romania encompasses all aspects of production, marketing, investment, and finance. The State assumes the role of centralized manager-planner-coordinator to ensure that production activities satisfy cen- trally delineated requirements of society. The vehicles used for translating Stat- prioriticr into detailed production targets are the Five-Year and Annual Plans for socio-economic development. General targets are established for the economy as a whole as well as specific targets for the production complex at the microeconomic level. Directives in the plans are obligatory and carry legal authority. 2.07 The 1976-80 Plan calls for an increase in gross agricultural produc- tion of 28-44% over the 1971-75 average. Based on past sectoral performance, growth at least equal to the lower bound target is considered feasible. The Plan proposes intensive development and modernization of agriculture to in- crease domestic food supplies in line with consumption requirements, guarantee sufficient raw materials for the industrial sector, and contribute to increased foreign trade (Annex 1, Part IV). 2.08 Proposed investments in pig production and processing under the 1976-80 Plan would represent one component of a total investment package for the livestock subsector attempting, inter alia, to raise meat production to a 1976-80 annual average of 2.5-2.7 million tons of meat (live-weight). Fulfillment of this target would mean an increase in meat production of 34-45% over the 1971-75 average level of 1.8 million tons, or 24-35.5% over 1975 output of 2.0 million tons. As presented below, a total of 6,940 mil- lion lei has been committed under the Plan for investments to increase and upgrade pig production capacities and another 5,550 million lei to provide adequate facilities to process projected incremental pig output. Proposed investments would permit a continuation of the average five percent annual rate of growth in pig production demonstrated over the last decade. Based on past production performance, technological development, and a satisfactory grain-protein base for livestock activities, planned growth rates in pig production are considered attainable (Annex 1, Part V and Annex 4). -4- Investment Program in Pig Production and Processing, 1976-80 ------------Lei Million-- 1976 1977 1978 1979 1980 Total Pig Production 1,170 1,760 2,080 1,070 860 6,940 Slaughterhouse and Meat Processing Facilities 1,150 1,050 1,050 1,150 1,150 5,550 Total 2,320 2,810 3,130 2,220 2,010 12,450 2.09 The proposed increase in pig production from 8.6 million pigs in 1975 to 13 million by 1983 would make a substantial contribution toward (a) a planned boost in per capita meat consumption from 46 kg (fresh meat basis) in 1975 to 55-60 kg by 1980; and (b) exportable balances of fresh and frozen pork and pork products. To support this livestock development scheme, Romania has (a) made a policy decision (1970) to forego exports of feedgrains whenever necessary in order to ensure adequate supplies to the livestock subsector, and (b) placed emphasis through the 1976-80 Plan on investments to increase feed- grain production (maize and barley), and to speed up substitution of domestic- ally produced protein materials for imported stocks (principally soybean meal and fishmeal) (Annex 1, paras 5.13-5.24). 2.10 Investments in pig production included in the 1976-80 Plan would enable an expansion of pork production by 428,500 tons (live-weight) for a 45% increase over 1975 production levels by 1983 (Annex 2, Table 1). Project investments, encompassing those committed for 1977 and 1978, would yield 48% of the total incremental pork output. Preliminary quantities of pork would be generated from project investments beginning in 1978 and 1979, with full production achieved in 1981. Assuming a total meat production level of 2.8 million tons by 1983 1/, pork output would represent 50% of the total. Project output in 1983 would equal about 7.4% of national meat production and 26.4% of incremental meat production over 1975 levels. 2.11 Under the 1976-80 Plan, total slaughtering capacity for all live- stock would be increased from 927,000 tons, carcass-weight 2/ in 1975, to 1,750,000 tons annually in 1985 when 1980 investment commitments would be fully operational. Pig slaughtering capacities would be increased from 474,000 to 862,000 tons, sufficient for handling incremental pig production generated under the Plan. Processed meat production capacity would also be expanded from 170,000 to 281,000 tons. Under the project, total livestock slaughtering capacity would be expanded by 167,900 tons, carcass-weight, including 111,000 tons of pork, 39,100 tons of baby beef, and 17,800 tons of beef. Incremental processed meat production capacity financed under the project would total 34,000 tons. 1/ Mission estimate. This assumption is consistent with planned meat production (2.5-2.7 million tons live-weight, annual average 1976-80) and historical trends of total meat supply composition. Over the 1971-75 period, pork represented 46-50% of total meat production. 2/ Carcass basis equals 75% of live-weight basis for pork and 55% for beef. - 5- D. Pig Production 2.12 Pig rearing and fattening have been traditionally important pro- duction activities within Romanian agriculture. Consumer preference for pork as well as a firm feedgrain base have provided stimulants for increased allocation of investment funds to this subsector and complementary research program. Romania over the last 15 years has developed systems of pig produc- tion that rank among the largest in the world for their large scale of opera- tion, and compares satisfactorily in productive performance with other pig producing countries. To support this important subsector, an active research program is maintained to improve the genetic base of the national pig herd. Veterinary services are extensive and generally maintained within each large production complex. 2.13 Over the 1950-75 period the national pig herd quadrupled from 2.2 to 8.8 million head. During these years of general growth in pig production, the organization of this livestock activity has undergone significant change, in part reflecting the concurrent reorganization and collectivization of the agricultural sector (Annex 1, para 5.4-5.9). Agricultural Production Units 2.14 The present structure of the agricultural sector is the result of a State-managed program to increase collectivization and direct State par- ticipation in production activities. During the 1945-48 period, a small-scale, peasant-oriented farm structure was established. This was eventually trans- formed (1949-1962) into a large-scale farming system including cooperatives and State-owned and operated farming enterprises. Today five kinds of agri- cultural production entities can be distinguished: (a) State agricultural units, including State agricultural enterprises (IASs); (b) cooperative com- plexes (CAPs); (c) inter-cooperative associations (ICAs); (d) small individual plots used by CAP members; and (e) privately owned farms. 2.15 IASs are State-owned, large-scale, capital-intensive farm enter- prises worked by State employees. In 1975, there were 391 IASs farming 14% of total agricultural land. In that year IASs averaged 5,263 ha per unit and employed an average of 644 persons per complex, implying about 8.2 ha per employee. LASs in 1975 produced 22% of total cereals, 13% of cattle, 38% of pigs, and 12% of sheep. LASs, considered the pilot sector within Romanian agriculture, have until recently received priority with respuct tc r..':cati0a; of superior land, irrigation facilities, new technology, and financial re- sources. Beginning in 1962, the Government began a reorganization of the IAS system to collectivize State farms engaged in pig rearing and fattening activi- ties under a State enterprise structure specialized exclusively in pig produc- tion. These "State Agricultural Enterprises for Pig Production" generally have no complementary land resources and therefore usually rely on State-operated feedmills for feed requirements. Fifty percent of IAS net income is allocated to a minor on-farm investment fund and to an insurance fund, and the balance transferred to the State budget. Salaries of IAS staff are fixed by law but -6- vary according to skill levels; 80% of salaries is paid at least monthly and the remainder at the end of the season, provided the planned targets have been met 1/ (see Annex 1, paras 3.13, 3.14, and 3.17). 2.16 The land and assets of a CAP are jointly owned by the cooperative members. In 1975, there were 4,419 CAPs supporting 3.4 million families for about 2.6 ha per family. CAPs owned 54% of total agricultural land and pro- duced 64% of cereals, 42% of cattle, 32% of pigs, and 40% of sheep. A CAP is managed by its elected President and comes under the purview of the district General Director for Agriculture. The net farm income of a CAP is allocated among a development fund to finance future investment, a consumption fund to cover wages, security payments, and a socio-cultural fund. Wages are com- puted on the basis of production norms, which vary across agricultural activ- ities. In pig production, workers are paid, for example, according to number of piglets born per month, number of sows tended, mortality rate, the number of piglets weaned, and incremental weight gain per month. Eighty percent of the labor payment is usually paid on at least a monthly basis. The remainder, with any bonuses, is paid at the end of the production year if annual targets are reached or exceeded. 2.17 Some CAPs have begun to pool their resources for large-scale invest- ments in agroindustries and livestock activities. These associations known as ICAs are operated by State employees paid out of ICA revenues. With regard to pig production, a central ICA unit is responsible for breeding activities and raising weaners. A member CAP is expected to sell feedgrains to the ICA in accordance with its equity share in the total ICA investment. After selling these feedgrains for processing by feedmills, the ICA purchases back the finished feeds and allocates them to CAP fattening units. Part of the net income from ICA sales of fattened pigs is retained for further ICA devel- opment; the balance is divided among member CAPs proportional to their contri- bution to equity capital. 2.18 Members of CAPs are assigned small plots of cooperative land aver- aging 0.15 ha per active member (1975) for their own personal use. Although CAP members individually farmed only 7% of total agricultural land in 1975, they were responsible for 36% of all vegetables produced; 49% of eggs, 10% of cereals, and 21% of pigs. Individual CAP members are allowed to utilize col- lectively operated land for personal purposes once wheat and barley harvests are completed. Maize is usually grown as the follow-up crop to support back- yard livestock production activities. 1/ IAS unskilled farm workers earn approximately 1,200-1,600 lei per month. Comparable labor on CAPs earn a minimum of 1,000 lei monthly. In addi- tion, the latter receives further income from the sale of home-produced commodities and from off-farm employment. Their income, however, prob- ably averages slightly lower than those of IAS counterparts. In order to provide incentives, both IAS and CAP personnel receive bonus premiums if Plan targets are exceeded. In 1975, wages to workers in the agricul- tural sector averaged 1,622 lei (US$81) per month or about 8% less than that obtained in the industrial sector. -7- 2.19 About 10% of total agricultural land is farmed by about 150,000 private farmw families. Most of this area is located in the foothills and mountains. These farmers are important producers of vegetables and livestock products (Annex I, Part III). rechnology 2.20 In an effort to increase pig production on a crash basis, 12 specialized State enterprises were organized in 1961-62 to produce annually 100,000 fattened pigs per complex. In subsequent years, steps were taken to refine production techniques, e.g. manure removal systems, and expand produc- tion capacities to capture managerial and operational economies of scale. Managers enjoy considerable freedom of action within the centrally controlled system in regard to day-to-day operational decision-making. The levels of management capability vary widely and are generally satisfactory. Advanced training is currently provided to upgrade skills for staff already in the field (Annex 1, paras 6.4-6.6). Based on experience gained in this formative periou, smaller units with a modal capacity of 32,000 head p.a. were found to be more efficient and would be replicated under the 1976-80 Plan. Although pig production efficiency has improved with experience, specific measures can be implemented to improve productivity: (a) upgrading feed quality through utilization of more higher quality protein meals; (b) reduction of feed wastage through better management and improved feeding practices;- (c) increas- ing sow fertility and feed conversion efficiency through improvement in the genetic base of breeding stock; and (d) increasing sow fertility through better management practices with particular regard to timely breeding, .disease detection, assistance at farrowing, and monitoring. It is expected that under the project improvement in the above would result in increased yields of pork. E. Marketing and Processing 2.21 Within the Department of Food Industry of the Ministry of Agri- culture and Food Industry (MA), there exists a special agency, the Meat Industrialization Trust (MIT) in charge of processing most of the beef, pork, and mutton produced in the country. The organization and operation of MIT is discussed in Annex 2, Part I. In 1975, MIT handled 654,900 tons of pork (live-weight) representing 68.6% of national pork production. In the same year, 524,700 tons of pork, or 80% of the MIT total, were supplied by State enterprises and cooperatives. Of the 372,000 tons of pork produced in the private sector in 1975, 35% was sold to the MIT through local consumption cooperatives, 61% was retained for home consumption, and four percent was slaughtered in small local abattoirs and retailed in peasant free markets. 2.22 The Ministry for Internal Trade (MFIT) is responsible for the in- ternal distribution of all products for consumption. The MFIT submits esti- mates of domestic consumption requirements to the State Planning Committee during the formative phase of the national plans. Based on the Committee's assessment of feedgrain availabilities, meat supply, and export and consump- tion projections, quantities of meat available for domestic consumption are -8- determined and included in the final plan submitted to the General Assembly (see Annex 2, Part I for further details). Pork, mutton, and beef are sup- plied under contract with MIT enterprises to State shops and consumption cooperatives. Small quantities of meat can also be obtained at peasant free markets, pig production complex retail outlets, and a small number of private shops. Of the total 654,900 tons of pork processed by MIT enterprises in 1975, 226,500 tons were transformed into sausages and tinned meat, 86.3% for internal consumption and the balance for export. A total of 428,300 tons were processed into fresh and frozen products, 74% for domestic consumption (see diagram in Annex 2, Part I). 2.23 Romania has an established livestock slaughtering and meat processing industry including both small rural abattoirs for local consumption needs and large, modern meat packing plants. Existing facilities range from small, in- efficient operations to large-scale, efficient facilities constructed and run in conformity with international sanitary standards. A complementary Meat Inspection Service operates to ensure compliance with established health standards. By 1975, 86% of total slaughtering capacity nationwide existed in large industrial-type units. Some of these specialized industrial facilities in Romania are designed to slaughter and process only one type of livestock, usually pigs; other processing plants are equipped to manufacture a variety of meat products such as sausages and smoked and canned meats from purchased beef and pork carcasses. Byproducts are processed into edible fats; blood, meat, and bone meals; inedible fats; hides and skins; casings; and glands for pharmaceutical products. Planned expansion of livestock slaughtering and meat processing capacities are discussed in para 2.11. F. Input and Product Pricing 2.24 Prices of all products in Romania, at both farmgate/ex-factory and retail levels, are established and controlled by the State. A major tenet of Romanian economic policy is to maintain stable price levels. Over the 1971- 75 Plan period, retail prices in the aggregate increased by less than three percent and are expected to increase by approximately five percent between 1976 and 1980. The relative prices of essential goods, including food prod- ucts, are kept low; retail prices for some goods, e.g. bread, are unchanged since the early 1950's. Producer (supply) prices are also kept stable over at least one planning period: between 1974-76, producer prices were revised for the first time since 1963 to reflect changes in costs and technology on internal and international planes. As is discussed in Annex 2, Part II, a split-level pricing system operates for inputs and outputs of cooperative complexes and IASs. The financial rates of return for investments proposed under the project reflect these price differentials. G. Pork Consumption 2.25 Pork represents a major component in the Romanian diet and a pre- ferred meat commodity by the Romanian consumer. Over the last decade, pork represented half of all meat consumed per capita, rising from 13.5 kg (1965) -9- to 23 kg (1975) on a fresh meat basis. Along with eggs and other meat prod- ucts, pork represents a major source of high grade protein in a diet marked by relatively high cereal consumption and intake of protein of vegetable origin. 2.26 Comparisons of per capita consumption of total meat and pork in Romania and other Eastern European countries having similar tastes and income levels reveal a generally lower relative consumption level in Romania. Accord- ing to FAO data, Romania ranked lowest of the Eastern European countries in total meat intake and second lowest in pork over the 1964-66 period; in 1975, this consumption gap remained significant. Similarly, per capita meat and pork consumption in Romania was below EC-9 averages (1974) by 43% and 30% respectively (Annex 2, Part III). 2.27 The 1976-80 Plan proposes expansion of domestic supplies of food commodities, and particularly meat to facilitate a planned 20-30% increase in meat consumption per inhabitant over the 1976-80 period. Proposing to keep the share of pork in meat consumption relatively constant through 1980, the Government supports an increase in total meat consumption per capita from 46 kg in 1975 to 55-60 kg by 1980, including a growth in pork consumption from 23 to 29 kg over the five-year period. 2.28 The proposed project would make a major contribution toward fulfill- ment of this planned 20-30% increase in per capita meat consumption. Incre- mental pork derived from the project would total 208,100 tons (liveweight) in 1981 or 75.5% of an estimated 275,717 tons required for domestic consumption in that year (see Annex 2, Table 1). With full development of total 1976-80 Plan investments in 1983, an estimated 69.4% of the total incremental pork production equalling 428,500 tons must be allocated to the home market to maintain per capita consumption at the 1976-80 planned level of 29 kg. 1/ By 1983, an excess incremental supply of 131,100 tons of pork, approximately equal to the live-weight equivalent of 1975 pork exports, would be generated. This excess incremental quantity, valued at 1976 f.o.b. Romanian prices, would.be worth an estimated US$158.3 million equivalent. Should this incre- mental amount have to be diverted to internal markets due to diminished oppor- tunities for export, it would enable an increase in pork consumption from 29.0 kg per capita in 1975 to 32.4 kg in 1983, a level on par with the EC-9 1974 average. 2.29 To support a per capita meat consumption of 55-60 kg, 353,000-529,000 tons of incremental meat supplies must be provided for domestic -se !a 9Z2. If meat production totals 2.8 million tons by 1983, implying a 788,000 ton increment over 1975, 44.8-67.1% of this increment would be required to support domestic consumption targets. If Romania in that year were unable to find suitable markets internationally for the balance and were forced to divert it to internal use, per capita consumption of meat in 1983 would rise to 66.6 kg. This level would still be 18% below the EC-9 1974 average. 1/ One percent&population growth rate assumed. - 10 - H. Pork Exports 2.30 Meat exports, totalling 22,600 tons in 1970, grew to 164,800 tons by 1975 after Government placed increased emphasis on this export category as an important generator of convertible foreign exchange. In 1975, fresh and frozen pork exports totalled 82,300 tons while tinned meats and sausage exports, composed predominantly of pork, summed to 23,000 tons. Converted to a uniform live-weight basis, pork exports represented 14.2% of total 1975 pork production, approximately 78% of which was sold in fresh and frozen form. Although detailed data concerning the.geographical distribution of Romanian meat exports were not provided to the mission, fragmented informa- tion suggests that (a) .Italy, France, and the Federal Republic of Germany (FRG) represent the major buyers of Romanian fresh and frozen pork; (b) US for canned hams and pork loins; (c) FRG, the Netherlands, Sweden, and UK for other canned meats; and (d) FRG, Austria, and Sweden for sausages. 2.31 Foreign trade is a State monopoly in Romania. Prodexport, a State- run trading company, is the only agency authorized to sign contracts with foreign buyers for the purchase of Romanian pork and other selected agri- cultural products. Prodexport searches for new markets, advises economic planners concerning the world market situation, and concludes contracts with various State centrals for the supply of goods for export. With regard to beef, mutton, and pork, once contracts are signed, MIT is responsible for production of export commodities and their delivery to the border point of dispatch (Annex 2, paras 4.2-4.4). 2.32 Although Romanian exports of pork have expanded rapidly over the last five years, the prospects for continued expansion for the medium- and long-term are difficult to assess. Detailed analysis of the EC, US, Eastern European, and Japanese markets is presented in Annex 2, Part IV. Over the last several years, Romania has been able to capitalize on a reduction in pork exports from Poland, the Netherlands, Denmark, and Canada, principally to the US and EC markets. In addition, Poland and the USSR have relied on Romanian supplies to compensate for recent cutbacks in their national herds. The following are viewed as potential constraints to major growth in Romanian pork exports in the future: (a) potentially rapid buildup of national herds in importing countries; (b) improvement in feedgrain production performance enabling the support of larger pig production activities in importing coun- tries; (c) trade barriers; (d) increased competition in the international market; (e) reduced consumer preference for imported pork, especially canned hams (US); (f) less than favorable general economic climate in importing countries; and (g) balance of payments constraints of importing countries because of growing imports of petroleum products (Annex 2, paras 4.5-4.18). In view of the difficulties in projecting export levels, the absorption of project output has been considered both in terms of domestic consumption as well as export (paras 2.27-2.29 and 6.02). - 1.1 - III. THE BANK FOR AGRICULTURE AND FOOD INDUSTRY (ANNEX 3) A. Tasks, Responsibilities and Powers 3.01 The Bank for Agriculture and Food Industry (BAFI) is a State-owned credit institution established to finance production and investment in agri- culture and agroindustries. The more important responsibilities of BAFI are to: (a) act as fiscal agent for collection and distribution of budgetary funds; (b) grant short-term production credit; (c) approve investment pro- posals of State enterprises and cooperatives; (d) grant long-term investment credit; (e) maintain checking accounts and accept deposits; (f) exercise financial control over execution of financial and investment plans; and (g) cooperate with foreign and international organizations to finance investments in agriculture and agroindustries. B. Organization and Management 3.02 The Administrative Council is the policy-making body of .BAFI. It is composed of BAFI's President, Senior Vice President, and Vice President, directors of BAFI departments in the head office in Bucharest and several BAFI branches, economic and agricultural experts, representatives of minis- tries and other central State organs, and a delegate designated by the General Trade Union of Romania. Between the sessions of the Administrative Council, the Executive Bureau acts as the decision-making body. Its members are the President, the Senior Vice President, the Vice President, three department directors and the trade union representative (see para 5.01 and Annex 3, para 3.6 for further details about BAFI staffing). 3.03 BAFI's operations are carried out by 39 branches, 92 sub-branches, and about 800 credit cooperatives for small-scale lending. Institutions of national importance are served by the three operational departments in the head office (agroindustries, cooperative sector, and State sector). C. Fiscal Agency Operations 3.04 One of BAFI's most important functions is that of financial agent for State long-term investments in agriculture and agroindustries. BAFI reviews and approves details of proposed development plans, makes disburse- ments according to each plan, supervises plan implementation with particular emphasis on development targets, and collects "depreciation" payments 1/ on State budget account. For this service, BAFI receives a commission of 0.5% of the investments channelled through it. Over the past several years, State equity contributions for investments disbursed through BAFI were as follows: 1/ Depreciation charges are assessed on capital inputs based on acquisition costs and the legal life of each item to provide for full cost recovery (Annex 1, para 3.17). - 12 - FY Lei Million 1970 - 100 1970 27,077 100 1973 39,471 146 1975 62,593 231 D. Financing Policies and Procedures 3.05 BAFI makes both short- and long-term loans to the cooperative sector and to a limited degree to individual coop-members and private farmers. Short- term capital requirements of State enterprises are met by BAFI production credits. Long-term investments in State enterprises are normally financed on non loan basis from the State budget. Long-term lending to State enterprises started with a very limited scope under the "Small Mechanization Program" and on a regional basis under the Bank-financed projects (Sadova-Corabia Agricul- tural Credit Project, Flood Recovery Project, and Rasova-Vederoasa Project). The shift from equity contributions to investment lending reflects a policy decision to require greater financial responsibility from the State enter- prises. 3.06 Repayment terms for long-term loans are set by law. The length of the repayment period varies with the type of investment financed. The interest rate charged depends on the ownership of the investing entity; State enter- prises are charged two percent during construction and four percent thereafter while all other borrowers pay a uniform three percent. 3.07 Short-term loans must be repaid within 12 months. Interest rates for short-term financing are fixed by law and vary from 2% to 4% according to the ownership and production activity of the borrower (see Annex 3, para 5.7). 3.08 In addition to controlling plan execution, BAFI intervenes even during project design whether financed from the State budget or loan funds. Production complexes prepare technical and financial proposals for investments included in annual plans; these detailed project studies, once approved by a State technico-economic commission, are reviewed by BAFI's technical and engineering staff which often gives "compulsory advice" to reduce proposed investment costs. Once a plan is approved by BAFI it is binding for both the client and BAFI. After approval, BAFI supervises the operations of borrowers .and investors closely. BAFI inspectors visit clients regularly and report on conditions in the field. Delays-and infractions in operations and project execution are penalized. In addition to the supervision activities carried out by BAFI branches, sub-branches, and operational head office departments, there is a central supervision division which ensures that this activity is performed properly. 3.09 Loans are primarily secured by "credit engagements" of borrowers who commit all present and future income to debt service and are obliged to maintain all their revenue in BAFI accounts. In accordance with BAFI policy, short-term credit must not exceed 60% of production valued at selling prices. Though no bad debt has been recorded by BAFI to date, the law provides that in the case of a liquidity problem, BAFI's claims would have priority vis-a- vis other debts. - 13 - E. Lending and Investment Operations 3.10 The total volume of BAFI financing rose from 149 billion lei (US$7.4 billion) in 1970 to 380 billion lei (US$19.0 billion) in 1975 with its struc- ture remaining relatively stable (80% being short-term production credit and the balance long-term investment financing). 1/ F. BAFI-Financing of Pig Production and Processing- (Annex 3, Table 4) 3.11 To date financing of pig production and processing accounted for less than 10% of total outstanding short-term credit. About half of this was allocated to one borrower, MIT. A large and increasing percentage of outstanding short-term loans for pig production was allocated to the coopera- tive sector (1973: 67%; 1975: 87%). About five percent of total State funds funnelled through BAFI for investment were for pig production and processing, with a growing percentage of funds being allocated for the latter (87% in 1975). Investments in pig production and processing were financed by contri- butions from the State budget (for State enterprises), investors' own funds, and long-term BAFI loans (in the case of the cooperative sector). No invest- ment loans for pig production,and processing to date have been made to State enterprises, private farmers, or individual coop-members. G. Sources of Funds 3.12 The main sources of BAFI funds are its statutory capital (800 mil- lion lei), the reserve fund representing accumulation of net profits (800 million lei), and special funds provided from the State budget based on the State's financial plan for agricultural investment targets. BAFI obtains short-term borrowings from the National Bank of Romania and accepts deposits from socialist organizations. 2/ BAFI pays 1.5% p.a. interest on these lia- bilities. Deposits have ranged between 4.0 and 5.1 million lei over the last five years. 1/ Data available concern only the industrial-type system. Financing of pig production and processing in the traditional sector is not covered by data obtained as these units are engaged in mixed farming; informa- tion on their financial operations is aggregated. This sector therefore covers the industrial-type system which accounted for about 39% of the pig production in 1975. 2/ State enterprises and cooperative complexes. - 14 - H. Financial Condition 3.13 BAFI's net operating balance has risen steadily from 260.5 million lei in 1970 to 1,243.6 million lei in 1975. While total income grew rapidly over the period, total expenses remained relatively stable. Costs are kept under tight control. Despite a considerable growth in total assets from 23 to 60 billion lei over the 1970-75 period, the total number of BAFI staff members was cut by 100. The latter reflects BAFI's success in controlling operating costs through the introduction of electronic data processing and other efficiency measures. 3.14 BAFI's net worth was 1,600 million lei on December 31, 1975. Because of its control over the accounts of its borrowers, surveillance of disbursements and loan proceeds, as well as detailed and rigorous inspec- tions of operations at the project level, BAFI has had no reported loss due to bad debt. Additionally, BAFI does not run foreign exchange risk since such operations are handled by the National Bank of Romania and the Romanian Bank for Foreign Trade. Being well protected against potential risks with regard to its assets and liabilities and given BAFI's close control of cost develop- ments, BAFI is expected to continue to remain in good financial condition. I. Performance Under the Sadova-Corabia Agricultural Credit Project 3.15 The objectives of the Sadova-Corabia Agricultural Credit Project are generally being achieved up to Bank expectations and in accordance with appraisal report estimates. Through investment financing for development of socialist complexes in the Sadova-Corabia region, the project would facilitate execution of a farm development and agroindustries program initiated under the 1971-75 Plan. The objectives of this strategy were (a) intensive cultivation of crops benefitting the most from irrigation in order to satisfy projected domestic demand and anticipated exports; (b) development of the livestock subsector; and (c) integration of production activities with existing agro- industrial capacities and creation of new capacity as required. Toward these ends, the project includes financing for development of orchards, vineyards, dairy farms, beef fattening units, a fruit handling and storage complex, a feedmill and silo, a premix feedmill, refrigerated trucks, farm machinery, a leaf analysis laboratory, as well as provision for technical training. As of March 31, 1977, 80.4% and 88.2% of total project investment funding and Bank loan proceeds respectively had been committed. By April 30, 1977, dis- bursements had reached US$14.2 million or 47% of the Bank loan. Disbursements are currently running about 42% ahead of estimates made at appraisal; there- fore, based on present performance, the loan is expected to be fully disbursed by January 1980 as per the appraisal estimate. 3.16 The physical execution of the project has basically conformed to the scale and purpose envisaged. On-farm development subprojects are proceeding satisfactorily with construction and equipping of beef-fattening facilities, dairy barns, and ancillary structures, completion of contracts with foreign - 15 - suppliers for delivery of in-calf heifers, and planting of vineyards and orchards. The feedmill and silo complex construction is progressing on sched- ule. The fruit and vegetable processing facility is expected to be completed for the 1977 harvest season. The MA Institute of Design has recently prepared a technico-economic study for the design of the leaf analysis laboratory, and construction was begun in early 1977. The training component of the project is expected to be initiated in late 1977. 3.17 The technical and financial analysis and supervision of subloans by BAFI has proved comprehensive and satisfactory. IV. THE PROJECT A. Objectives 4.01 The project represents a two-year tranche from Romania's 1976-80 National Development Program for the pig production and meat processing sub- sector. The project would make a major contribution toward fulfillment of planned increases in domestic meat supplies to support efforts to improve nutritional balance and generation of increased exports. Investments to expand the pig production and processing subsector are considered to be of high priority due to (a) the strong consumer preference for pork in increasing the meat content of diets, (b) the high level of production and processing technology and performance established in the country, (c) the satisfactory domestic feedgrain base, and (d) export experience and the relatively close proximity to export markets for exportable surpluses. Specifically, the project aims to (a) develop a sufficiently large multiplier herd to support the industry; (b) maintain animals of high genetic quality through the use of improved breeding stock and additional development of testing and selection centers; (c) continue reorganization of pig production activities into special- ized "industrial-type" complexes to capture managerial and technical economies of scale and to facilitate transferal of technical know-how throughout the subsector; (d) increase dispersion of production capacity throughout the country to meet more efficiently the consumption requirements bf the popula- tion; (e) provide adequate slaughtering and processing units and the moderni- zation of existing facilities in accordance with international sanitary standards and high operational efficiency. B. Detailed Features Project Components 4.02 The project would include investments for (a) facilities and initial livestock for about 60 pig breeding/fattening complexes 1/ with an aggregate 1/ Equivalent of 39 pig breeding/fattening complexes with a modal annual fattening capacity of 32,000 head per unit. - 16 - annual capacity of 1.5 million pigs; (b) facilities and initial livestock for about 40 pig breeidng farms 1/ with an aggregae annual production capacity of about 100,000 gilts; (c) a pig farm modernization program for increasing and renovating the production capacity of existing facilities; (d) a pig improve- ment and selection program for extending and developing further the national breeding program involving breeds of high genetic quality; (e) the construc- tion of modern livestock slaughtering and meat processing facilities and specialized sausage processing plants; and (f) a modernization program for existing slaughterhouse and meat processing plants. Subloans would be pro- vided to State enterprises and cooperative complexes for buildings and utilities, processing equipment, quality breeding stock, farm machinery and vehicles, and feed storage units. Investments would be phased over a four- year implementation period (1977-81). In an effort to explore possible measures to increase pig production efficiency, the Ministry of Agriculture will review, improve and develop, in consultation with the Bank, the current pig husbandry, nutrition, selection and reproduction programs including their organization, to maximize project benefits. Detailed descriptions of individual components are provided in Annexes 4 and 5. During negotiations, assurances were obtained that the project features as described above would be undertaken. C. Cost Estimates 4.03 The total project cost is estimated at 6,449 million lei (US$322.5 million) of which 1,425 million lei (US$71.3 million) would represent the foreign exchange component. Detailed cost estimates are presented in Annexes 4 and 5. 4.04 Cost estimates are based on December 1976 price levels. These es- timates were adjusted to reflect increases in base costs of construction materials and equipment effected by Council of Ministers Decision 394/76 dated December 12, 1976 about which the Bank was informed during negotiations. Physical contingencies of 10% for the pig breeding/fattening complexes, 5% for the pig breeding farms, and 4% for the other components (averaging 4.8%) have been included in the project cost estimates. Also included is a 5.4% average price contingency to allow for expected inflation in foreign and local costs during the implementation period. 1/ Equivalent of 106 pig breeding farms each with a modal production capacity of 960 gilts. - 17 - TOTAL PROJECT COST Local F.E. Total Local F.E. Total % -----------Lei '000-------- ------US$'000------- F.E. Pig Fattening Complexes Cooperatives 1,139,915 284,150 1,424,065 56,996 14,208 71,204 20 State Enter- prises 700,014 174,624 874,638 35,001 8,731 43,732 20 Pig Feeding Farms Cooperatives 692,048 168,927 860,975 34,602 8,446 43,048 20 State Enter- prises 151,073 34,647 185,720 7,554 1,732 9,286 19 Pig Farm Modern- ization 266,597 62,541 329,138 13,330 3,127 16,457 19 Pig Selection Farms 77,654 17,994 95,648 3,882 900 4,782 21 Slaughterhouse and Meat Processing Facilities 1,543,586 369,800 1,913,386 77,179 .18,490 95,669 19 Slaughterhouse Modernization 123,253 30,837 154,090 6,163 1,542 7,705 20 Subtotal 4,694,140 1,143,520 5,837,660 234,707 57,176 291,883 20 Contingency Allowances Physical 223,967 55,530 279,497 11,198 2,777 13,975 Price 1 105,782 226,230 332,012 5,289 11,311 16,600 Subtotal 329,749 281,760 611,509 16,487 14,088 30,575 Total 5,023,889 1,425,280 6,449,169 251,194 71,264 322,458 22 /1 The following expected inflation rates were used (in percent per annum) in determining price contingencies for the total project cost: Imported Component Local Component 1977 8.0 1 1978-79 7.5 1 1980 7.0 1 - 18 - D. Financing 4.05 The financing plan for the project is shown below: IBRD BAFI Sub-borrowers Total --------------------------Lei '000-------- Pig Fattening Complexes Cooperatives 362,467 759,231 480,371 1,602,069 State Enterprises 218,649 763,271 - 981,920 Pig Breeding Farms Cooperatives 199,779 451,629 279,066 930,474 State Enterprises 40,893 159,633 -- 200,526 Pig Farm Modernization 73,565 263,572 18,863 356,000 Pig Selection Farms 21,994 83,006 - 105,000 Slaughterhouses and Meat Processing Facilities 466,033 1,640,147 - 2,106,180 Slaughterhouse Modernization 36,620 130,380 - 167,000 Total Lei '000 1420,000 4,250,869 78,30 6,449,169 Total US$ '000 71,000 212,543 38,915 322,458 Percentage of Project Total Cost 22 66 12 100 4.06 A Bank loan of US$71 million would be made to BAFI which would fi- nance about 22% of total project costs, equivalent to 100% of the estimated foreign exchange component. BAFI would contribute 66%, and sub-borrowers (cooperatives) would provide the balance from their own resources. BAFI would cover 23% of total project costs from its own funds through on-lending to cooperative sub-borrowers. Cooperative sub-borrowers would contribute 30% of the cost of each individual investment subproject. Investments on State enterprises amounting to 43% of total project costs would be financed from State budget funds which would be channelled through BAI for onlending. State enterprises would not contribute to the investments from their own funds. The Bank loan would be for 15 years including three years of grace. BAFI would provide medium-term loans to sub-borrowers for a maximum period of six years to cover interest during construction. Investment subloans would be for a period of up to 18 years including a maximum three-year grace period. BAFI would finance any cost overruns that might occur in the project. Govern- ment would bear the foreign exchange risk. Assurances on these financing terms would be obtained during negotiations. - 19 - E. Procurement 4.07 Although Romanian laws provide for international competitive bid- ding and for joint ventures involving foreign and domestic enterprises, in practice, all civil works are constructed by Romanian State-owned construction enterprises who are experienced and familiar with local conditions, methods, and regulations. Installations similar to those proposed under the project have in the past proved well designed and constructed. These would be widely dispersed throughout the country, would vary in size from location to loca- tion, and would be constructed over a four-year period. Therefore, construc- tion of project facilities would be carried out under contract by the Romanian construction enterprises. Equipment and material required for the project are estimated to cost about US$112 million (including contingencies). An agreed list of items to cost an estimated $71 million would be procured by Romagrimex under ICB in accordance with Bank procurement guidelines. These items include construction materials steel reinforcing rods, US$12 million; electric cable, US$14 million; structural steel, US$9.0 million; asbestos cement sheets, US$4 million; and steel pipe, US$2 million; and slaughterhouse and meat processing equipment US$30 million. Romanian manufacturers would be allowed a 15% pre- ference margin or the applicable customs duty, whichever is lower. Romanian manufacturers are highly competitive and it is anticipated that foreign sup- pliers would be awarded contracts for only about US$9.4 million for slaughter- house and meat processing equipment which are not manufactured in Romania. During negotiations assurances were obtained that project procurement of items specified above would be obtained through ICB in accordance with Bank Guide- lines. F. Disbursements 4.08 Bank disbursements would extend over an estimated 5-year period although the entire loan is expected to be committed by the end of the third year. The annual phasing of investments and the forecast of quarterly dis- bursements are shown in Annexes 7 and 8 respectively. Disbursement of the proposed Bank loan of US$71 million would be as follows: (a) Disbursements under BAFI - 25% of the amounts disbursed loans (US$71 million) by the Borrower on subloans. Supporting documents for BAFI loans would not be submitted to the Bank for review but would be held available for inspection by Bank supervision missions. - 20 - G. Environmental Impact 4.09 Romania maintains a comprehensive system of'standards and controls to ensure satisfactory waste water treatment. Facilities financed under the project would be constructed and operated in conformity with this environ- mental protection code. During construction, each pig production complex would be required by law to install suitable waste water treatment works as well as separate well and water pumping facilities. In the manure and waste disposal system, combined solid and liquid manure would be pumped to concrete holding tanks for sedimentation and separation of liquid and semi- solid materials. After about 20-30 days of drying, the remaining solid material would be loaded and transported to farms for use as fertilizer. Similarly, slaughtering and meat processing facilities would be required to construct pre-treatment plants to bring waste water to a purity level equal to that of local municipal waste water. Only then could a facility discharge into the municipal sewerage system. Caution would even be taken to ensure that surface rain water is removed through a separate system from that handling plant waste. Slaughterhouses and meat processing plants must pay to discharge pre-treated waste water into municipal systems for final processing; this charge is either calculated on a fixed fee or a gauged basis. If a slaughterhouse complex is constructed in a community where it represents the dominant industry, it would build a sewerage treatment unit for the entire town and thereafter forego periodic charges for its use. A strict system of penalties is maintained to ensure compliance with water purity requirements. V. PROJECT IMPLEMENTATION A. Organization and Management 5.01 BAFI would be the Borrower under guarantee of the Socialist Republic of Romania, and individual subprojects would be implemented by State enter- prises and cooperatives. The project would be administered by BAPI through its branches in all 39 districts of Romania. Of the total 3,710 BAFI employees, 80% are professional staff members trained in engineering or specialized in economics, banking, or accounting. As is the Romanian practice, managers of farm enterprises would be university graduates whose technical competence would be continuously upgraded through seminars and demonstrations. 5.02 BAFI branches would have responsibility for directly supervising the financial and administrative execution of the subprojects, with technical assistance from the MA, particularly the Directorate General of Agriculture, research stations, and meat inspection service (para 3.08). BAFI would meet project expenditures from a special project account which would receive funds from the State budget and through disbursements from the Bank loan. - 21 - B. Lending Policies and Procedures 5.03 Proposals of subprojects to be financed would be examined by BAFI which would determine that all subprojects financed are technically feasible and financially viable. Analysis of those subprojects subject to prior Bank approval would be undertaken according to a format agreed upon between BAFI and the Bank. Detailed subproject investment proposals would be submitted to the branches or to BAFI's Central Office depending on their complexity. All subproject investment proposals would have to be cleared by the respon- sible MA agency before the subloans would be approved by BAFI. BAFI would prepare an individual summary analysis for each investment subproject includ- ing indicators and investment data. For subprojects involving total invest- ment of 40 million lei (US$2 million) or more BFI would submit the individual summary to the Bank for prior approval. For subprojects involving total investment between 20-40 million lei BAFI would submit individual summaries for representative investment subprojects, 2 slaughterhouses - modernization, 4 new pig breeding/fattening complexes, 4 breeding farms, 4 pig breeding/ fattening complexes-modernization to the Bank for prior approval. This level of Bank review would cover 33% of the subprojects financed under the project. Under the 1976-80 Plan, provision has been made for sufficient slaughtering capacity to process anticipated pig output resulting from total Plan invest- ments for pig production. While 50% of the 1976-80 pig production investments would be made under the project, only 30% of total planned pig slaughtering capacity investments would be included in the project. Therefore, each subproject proposal would contain assurances that sufficient slaughtering capacity would be available to process incremental output expected from the subproject. Project subloans would be subject to the tight and efficient supervision BAFI exercises on current operations and borrowers (paras 3.08- 3.09 and Annex 3, para 4.3). 5.04 Under the project, IAS investment requirements would be met by BAFI loans with fixed amortization periods instead of by interest free allo- cations from the State budget. This would continue the policy of long-term lending to State enterprise emphasized under the Bank-financed Sadova-Corabia Agricultural Credit Project. IAS subloan maturities would take into consider- ation the grace period and the capacity of subprojects to repay from incre- mental income generated therefrom. For cooperative sub-borrowers, the maximum subloan repayment periods are set by law. For pig production the grace and repayment periods may not exceed 3 and 18 years respectively. 5.05 Interest rates would be the same as those charged by BAFI for similar investments. Interest on subloans to cooperative sub-borrowers would be 3% per annum. Interest on subloans to IASs would be 2% p.a. during construction and 4% p.a. after construction. Due to rigid controls on domestic prices, Romania maintains a domestic inflation rate of less than one percent per year. This one percent annual rate of increases takes into account the 19.8% in- crease in construction material costs effected in 1976; this cost adjustment represents the first since 1963 and no further increase is anticipated during project implementation. Insulation of the Romanian economy from world infla- tion is expected to be continued in the future. In view of the above, current BAFI interest rates are positive and are expected to remain so during repayment - 22 - of subloans. In addition, interest rates in general do not influence the allocation of resources or individual investment decisions in Romania (para 2.06). Lastly, the level of interest rates does not influence the level of capital intensity employed in investments, since project design and technology choices are standardized by the Ministry of Agriculture's Design Institute and applied nationwide. During negotiations, assurances were obtained on the project lending policies and procedures described in paras 5.01-5.05. C. Accounts and Audit 5.06 The existing accounting and auditing procedures in Romania are quite strict and satisfactory. BAFI's accounts are subject to a continuous audit by independent internal inspectors and an annual audit by inspectors from the Ministry of Finance and the Court of Superior Control. The Court, which reports directly to the President of the country, conducts an independent audit of BAFI's accounts and of results of audits by inspectors from the Ministry of Finance. Assurances were obtained that BAFI would submit its annual audit report satisfactory to the Bank within five months of the close of the fiscal year. 5.07 BAFI will keep separate accounts for all project expenditures in- cluding those related to goods and services financed out of the proceeds of the proposed Bank loan. These accounts will be audited according to existing procedures. During negotiations, assurances were obtained that a report on project accounts, audited by the Ministry of Finance, would be submitted to the Bank annually within five months of the close of the Romanian fiscal year. D. Monitoring 5.08 In order to measure progress of project implementation in relation to project objectives, goals, and schedules established for each project component, BAFI would submit quarterly reports to the Bank within three months of the close of each quarter. This would include data on progress of construction of all physical facilities, progress in the procurement of equipment and materials, and data on project expenditures and livestock production. Information would be collected on each component which would be consolidated into an annual report, reflecting increased pig production, annual consumption of pork, exports of pork and pork products, numbers of livestock slaughtered, and distribution of piglets for fattening. BAFI would be responsible for evaluating the benefits realized under the project including the impact of the project on livestock development and enactment of technical efficiencies discussed in para 2.20 in sub-borrower operations through a program to be agreed upon with the Bank. Assurances were obtained to this effect during negotiations. - 23 - E. Risk 5.09 The risks associated with project investments would be minimal. Design of the project components has been prepared in detail, and the Govern- ment has well organized and coordinated plans to supply necessary manpower, materials, and technical expertise to complete project works on schedule. The project represents a two-year investment program from the 1976-80 national development plan whose directives are obligatory and carry legal authority. However, to ensure that sufficient pork processing capacity would be provided to handle the incremental pigs produced under the project, assurances were obtained during negotiations that investments presently planned for 1979-80 for additional pork processing capacity would be made (Annex 5, para 2). The Government in addition (a) has allocated sufficient grain to support the project, (b) stands ready to forego grain exports, if necessary, to support livestock activities, (c) is actively pursuing programs to expand domestic production of high grade proteins for feed manufacture, and (d) supports the importation of protein materials to supplement domestic supplies. The rela- tively long-term nature of project production activities makes it difficult to analyze export prospects for incremental production of pork or total meat with any degree of accuracy. However, as argued in Annex 2, para 3.6 and 3.7, in- cremental pork production from the project, as well as projected incremental total meat quantities generated under the 1976-80 Plan, could reasonably be absorbed through internal consumption. The basic technology to be employed in project facilities is well established in Romania, and levels of efficiency observed are acceptable, but amenable to improvement through activities built into the project (para 2.20 and Annex 4, paras 13, 14, and 15). Project construction is usually completed within the time schedule specified by Government, and costs overruns are rare. Construction costs and wages are fixed for the duration of the 1976-80 Plan period. VI. BENEFITS AND JUSTIFICATION A. Production, Markets and Prices Production 6.01 Annual incremental pig production resulting from project invest- ments is projected to reach 208,100 tons (live-weight) at full development. Slaughtering and processing throughput capacities would be increased by 148,000 tons of pork, 32,400 tons beef, and 71,800 tons baby beef (live- weight). Markets 6.02 Since the mission was not provided historical data and projected estimates on per capita consumption of beef, lamb, and poultry, the relative demand for various meat products could not be analyzed. Also because the - 24 - mission was not provided with information on past and planned exports of pork and other meat products, it was unable to evaluate completely the incremental production in the context of Government's planned allocation between local consumption and exports. However, based on Government's overall meat produc- tion and consumption targets, it is expected that most of the incremental pork produced under the project would be allocated to the domestic market. Incre- mental output would represent about 76% of the estimated requirements needed to increase per capita pork consumption from 23 kg (1975) to 29 kg by the end of the 1976-80 Plan period. As part of the larger investment program (1976-80), the project would contribute to a total incremental pork output reaching 428,500 tons (live-weight) by 1983. Maintaining per capita consump- tion at 29 kg in that year, an excess incremental supply of 131,100 tons of pork would be produced. Government most likely would attempt to export this amount, but the export prospects are presently uncertain and difficult to project. Should export prospects not materialize and the total increment be diverted into the domestic market, the per capita pork consumption level would be raised to 32.4 kg by 1983 on par with the 1974 EEC-9 average (para 2.29). Prices 6.03 In view of the centrally controlled pricing system in Romania, incremental demand for feedgrain components and incremental supply of pork output are expected to have no effect on price levels unless authorized by Government directives (see para 2.24). B. Financial Results 6.04 The subloans under the project would be made according to the approved Plan. In view of the centrally administered pricing system, the financial rates of return, although calculated for the investment models, have limited value in the Romanian context. The financial rates of return projected or achieved do not govern the levels of investment which are estab- lished by law under the national planning system and do not indicate relative desirabilities of respective subprojects (Annex 1, para 4.1 and Annex 2, para 2.4). Financial models for typical investments under the project are given in Annexes 4 and 5. The notional financial rates of return range between 5 and 12%. C. Economic Analysis 6.05 The Romanian economy is expected to realize at least an 17% economic rate of return from total project investments inclusive of physical contingen- cies (Annex 10, Table 1). Since the pig production and processing components of the project are not independent, calculation of separate rates of return was deemed inappropriate. Such a calculation would in addition merely reflect the impact of pricing differences within the subsector (Annex 2, para 2.4). The economic rate of return was determined taking into account the following - 25 - quantified benefits: (a) final pork and beef commodities from slaughterhouses; (b) final products from sausage processing facilities; (c) soybean meal imports foregone as a result of meat, bone, and blood meals generated under the project; and (d) manure in inorganic fertilizer equivalents. All inputs and outputs were valued at end 1976 prices with assessment made for tradeable items according to international prices. Costs of insurance, social security premiums, and payments to special children's funds were excluded from the analysis. No special shadow pricing was conducted for labor used in project facilities assuming that wages given reflect the cruciality of significant skill levels required in production and processing operations to maintain high efficiency levels and conformity with international standards of hygiene (See Annex 10, para 2(f)). Sensitivity tests were conducted to assess the stability of the rate of return to variation in project cost and benefit streams. While displaying relative insensitivity to a ten percent increase in project invest- ment costs (15%), the rate of return did reveal a high degree of sensitivity to a ten percent increase in operating costs (7%) and to a ten percent reduc- tion in project benefits (5%). Such sensitivities are not atypical of live- stock production activities employing grain-intensive feeding systems w4eL., operating costs (principally reflecting feed costs) are high relative to income. This economic risk is considered limited due to the unlikelihood of a future rise in international feedgrain prices without a compensatory adjust- ment through market forces in prices of pork and pork products. Improvements in technical efficiency in pig production activities (para 2.20 and Annex 4, paras 13 and 14) would result in, higher economic rates of return and in a dampening of sensitivity oscillations (Annex 10, para 6). By increasing the number of marketed pigs per sow per year from the 12.5 average observed during appraisal to 13.5, the economic rate of return would increase.to 19% or by 13%. Similarly, an improvement by ten percent in feed conversion efficiency would result in an 19% increase in the rate of return to 20%. With a 10% increase in operating costs, declines in the rates of return would be limited to 9.4 and 8.6 percentage points in the case of better sow fertility and that of improved feed conversion respectively (vs. 9.8 points in the base case). Dietary Improvement 6.06 The incremental output allocated for domestic consumption would (a) enable increased intake of meat products (pork especially preferred by the Romanian consumer); (b) facilitate greater consumption of high grade proteins; (c) make additional provision for consumption needs of an expand- ing and increasingly urbanized population; and (d) improve the geographical distribution of pig production and processing complexes and resulting goods for retail (Annex 2, Part III). Increased Exports 6.07 Incremental exports would permit additional foreign exchange earn- ings, principally in convertible currencies, and an improvement in Romania's balance of payments (para 2.28 and Annex 2, Part IV). - 26 - Employment and Distribution of Project Benefits 6.08 The project would create an estimated 9,000 full-time jobs in project facilities located throughout the country. As is customary in Romania, the project would include a detailed education component to upgrade skill levels (Annex 1, para 6.6). 6.09 The socio-political system in Romania maintains income distribution mechanisms (Annex 2, Part II), which would pass on project benefits to a much wider segment of the population rather than merely limiting them to those individuals employed in project facilities. Considering the society in total, the entire population is expected to benefit directly from increased avail- ability of meat and meat products enabling improvement in nutritional balance. VII. RECOMMENDATIONS 7.01 During negotiations assurances were obtained from Government: (a) that the project would be implemented in accordance with the project description given in para 4.02 (para 4.02); (b) that the procurement procedures contained in para 4.07 would be followed (para 4.07); (c) that the project lending policies and procedures described in paras 5.01 through 5.05 would be followed (para 5.05); and (d) that investments presently planned for 1979-80 for additional pork processing capacity would be made (para 5.09). 7.02 With the indicated assurances, the project would be suitable for a loan of US$71 million, equivalent, to BAFI for a term of 15 years including 3 years grace. ANNEX 1 Page 1 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Agricultural Sector I. Role of Agriculture in the Romanian Economy 1.1 Agriculture represents a major sector of the Romanian economy. In 1975, agriculture accounted for 13% of social product 1/, 38% of the total labor force, 11% of total fixed assets, and 23% of total exports. The Romanian economy has demonstrated a 9-10% growth in national income over the past decade, largely attributable to high rates of capital formation averaging annually about 30% of national income. The agricultural sector has been an important contributor to this rate of economic growth. It has provided an expandin,g food base for a population growing at about one percent per year. The sector has been a source of important raw materials for industrial jproduc- tion and development. In addition, agriculture has provided a substantial reserve of labor essential for growth in other sectors of the economy, a labor pool that can be kept gainfully employed within agriculture until alternative or off-farm employment opportunities are established. In this regard, the labor force in agriculture declined from 6.2 million in 1950 to 3.8 million in 1975, while the labor force in the non-agricultural sectors increased from 2.2 to 6.4 million. More than half of the growth of employment in non-agricultural sectors since 1950 has been filled by former agricultural workers who have either moved to urban centers or have assumed non-farm employment in rural areas. The agricultural sector in addition contributes capital and earns convertible foreign exchange through exports to finance investment in industry, the sector receiving highest priority in Romania's development strategy. Producer prices for agricultural commodities are fixed by the State at rela- tively low levels to enable generation of large margins through retail and export activities, ultimately accruing to the State for potential allocation to investment in other sectors of the economy (see Table 1). 1.2 Over the 1965-75 period, social product in the agricultural sector (in comparable 1963 prices) increased by 50%, or by a compound rate of 4.1% per annum. Over this decade, crop production expanded annually by about 3% while livestock, growing at about 5.8% per year, assumed a larger share of total agricultural output. Livestock production represented 37% of the gross total in 1965 and 43% by 1975. I/ Social product is basically defined as the total output of material pro- duction generated at all stages of production. The production sector comprises those branches of the economy in which material goods are produced, circulated, and distributed for final use. ANNEX 1 Page 2 1.3 Expansion of agricultural output with reduced labor intensity was achieved by large infusions of capital and improved technology. Fixed assets in agriculture tripled during 1950-75, growing slightly more rapidly than total social product from agriculture. Social product per worker in agriculture was five times higher in 1975 than in 1950. Utilization of material inputs such as fertilizers and pesticides expanded as farming operations were increasingly mechanized. Total fertilizer use, for example, rose from only 22,000 tons (active substance) in 1955 to 929,000 tons in 1975, or by about 21% per year. 1.4 Romanian agriculture has displayed a positive trade balance over the last 25 years. Imports of agricultural products, largely limited by Government to essential primary commodities, rose from 285 million lei in 1950 to 4,725 million lei in 1975. Agricultural exports in comparison have expanded from 697 million lei in 1950 to 6,504 million lei in 1975 1/. Exports of agricultural products however declined as a percentage of total exports from 54.7 to 22.6% over the 1M5C-75 2erizd ac production and export of rela- tively higher valued industrial commodities expanded. A large part of the net foreign exchange earnings in agriculture has been in convertible currency instrumental in financing investment in the industrial sector. II. The Resource Base and Agro-Climatic Zones 2.1 Romania is relatively well endowed with good soils, a climate seasonally suitable for agriculture, and exploitable water resources. Out of a total of 23.8 million ha, approximately 41% are arable, 19% under pasture and meadows, 3% vineyards and orchards, 27% forest, and 10% waste and other land. While land reclamation programs succeeded in increasing arable area from 9.4 to 9.7 million ha, 1950-75, heavy investment by the State in irriga- tion systems enabled an expansion of irrigable area from only 43,000 ha in 1950 to 1.47 million ha in 1975. 2.2 Cereals for grain accounted for 63% of the average total of 9.6 mil- lion ha under crops, 1971-75. Maize and wheat were the major crops in this category with 3.1 and 2.4 million ha respectively. Oilseeds-sunflower, soy- beans, and flax-covered almost seven percent of the average cropped area while fodder crops about 16%. Sugarbeets, tobacco, potatoes, dry beans, and peas are other important annual crops. Most of the barley and maize harvested for grain and important by-products from wheat, barley, soybeans, sunflower, and sugarbeets are allocated to support the livestock subsector. Generally, annual crops account for about 92% of the total cropped area and perennial crops for only about eight percent. 2.3 Romania can be divided into three agro-climatic zones based on climate, topography, soils, and natural conditions influencing land use and agricultural performance (see map appended). 1/ Imports and exports are expressed in current international prices converted into lei as the current official rate of exchange. ANNEX 1 Page 3 (a) The Plains. This zone, located in the western and southern parts of the country, encompasses about 35% of the national land area. The terrain in this region is relatively level and endowed with relatively fertile soils. Rainfall averages 350-400 mm annually along the Black Sea coast, 500-600 mm moving west along the Danube, and 500-700 mm in the western sections of the country. Investments in irrigation systems have been primarily concentrated in this area, mainly in the southeastern plains, where rainfall is inadequate or erratic. This zone was especially affected during 1975 floods which inundated approximately 2.5 million ha. Flood protection works are presently being constructed to protect about 2.1 million ha of valuable cropland, predominantly in this region. The Plains area is particularly suitable for agricultural production. About 53% of all arable land and 42% of vineyards in Romania (1973) are located in this zone. Crop yields tend to be highest in this region, and livestock activities, especially pig and poultry production, have been concentrated in this major grain belt. In 1974, approximately 61% of the national pig herd was located in the Plains zone. (b) Foothills. The Foothills, comprising about 33% of the national land area, are'located mainly to the north of the Plains region and are characterized by shallow and less pro- ductive soils. Rainfall averages 500-600 mm in the eastern foothills and 600-800 mm in the western foothills. Wind and water erosion are especially serious problems in the eastern districts of this zone. Approximately 28% of total arable land, 35% of total pasture, 49% of vineyards, and 50% of orchard area are located in this agro-climatic zone. About one-third of the national cattle and sheep populations are in the Foothills, but only about 20% of the national pig herd. (c) Mountains and Tablelands. This zone, covering about 32% of total land area, includes districts in the northern and central parts of the country. As in the case of the Foothills, the mountainous areas of this region suffer serious problems of soil erosion. Potato yields are especially high in this area. Although it contains only 19% of total arable land, the region accounts for 50% of all pasture and meadow as well as about 35% of all cattle, 28% of total sheep, and 19% of total pigs produced. III. Agricultural Production Organizations Background 3.1 In pre-World War II Romania, a large portion of the agricultural land was owned by landlords and the church, but cultivated by tenants. There were however also a number of small farmers scattered throughout the country. ANNEX 1 Page 4 After the War, the transformation of agricultural land ownership and produc- tion from pre-war Romania to the present was accomplished in three phases, principally over the 1945-1962 period. During the first phase (1945-48), an attempt was made to establish a small-scale, peasant-oriented farm structure. The Government expropriated 1.6 million ha belonging to landlords and churches, distributed 1.1 million ha among about 0.9 million agricultural workers and small farmers, and allocated the balance to form the initial endowment of the State agricultural sector. At the same time, medium- and large-sized private farms were discouraged through the selective use of discriminatory quotas and prices. 3.2 The second phase of reorganization (1949-1958) involved a move toward large-scale farming through collectivization of small farms and an expansion of State agricultural enterprises (IASs). Although private farmers were encouraged through pricing incentives to join collectives, the campaign was initially unsuccessful basically because farmers were reticient about relinquishing title to their land and were unaccustomed to organized, coopera- tive production. As an interim measure, Agricultural Associations were formed in the early 1950's in which participating farmers pooled their land without relinquishing titles and received remuneration based on contribution to aggregate production. By 1958, however, about 30% of total agricultural land was still operated by individual private farmers. 3.3 The final effort toward collectivization was made during the 1959-62 period. Private farms and Associations were consolidated to form Agricultural Production Cooperatives (CAPs) in which all land and other fixed assets were collectively owned by the membership. By 1962, only 18% of agricultural land remained individually operated, located predominantly in areas geographically not conducive to collectivization. 3.4 Since 1962, the structure of the agricultural sector has been con- solidated further through a reduction in the total number of farming enter- prises. Between 1965 and 1971, the number of IASs declined from 721 to 215, subsequently to increase to 391 in 1975. In contrast, the number of CAPs fell less abruptly from 4,680 in 1965 to 4,419 in 1975. During the restructuring process, IASs were considered the pilot sector and were given superior land, a larger share of irrigation facilities, more mechanization, and quicker access to improved technology and material inputs. 3.5 In 1975, IASs and other State agricultural units such as research stations and pasture and forest enterprises, accounted for 30% of total agri- cultural land, 30% of all irrigated area, and 21% of all arable land. In 1975, IASs averaged 5,263 ha per unit and employed 252,000 persons implying approximately 644 employees per complex and about 8.2 ha per employee. Invest- ments on IASs in 1975 averaged 13.9 million lei per unit, or about 2,638 lei per ha of agricultural land. In 1975, lASs produced 22% of all cereals, 20% of oilseeds, six percent of potatoes, 13% of all cattle, 38% of pigs, and 12% of sheep. LASs utilized 252,000 tons of fertilizer in the same year, or 122 kg per ha of agricultural land (about 69% higher than the average per ha application on CAPs). ANNEX 1 Page 5 3.6 CAP farms accounted for 54% of total agricultural land in 1975, 69% of all irrigated area, 66% of all arable land, 44% of vineyards, and 50% of all orchards. In 1975 CAPs, exclusive of individual private plots, averaged 2,407 ha per unit and supported 3.4 million families, for about 2.64 ha per family. Investments in 1975 averaged 1.2 million lei per CAP unit or only 591 lei per ha (about 22% of that spent on IASs per ha). Lower investment levels have been in part attributable to (a) the reliance of CAPs on machine services from State-run Stations for Agricultural Mechanization (SAMs) and (b) Government priorities to the IAS sector. CAP farms accounted for 64% of total cereal production in 1975, 80% of oilseeds, 41% of all vegetables, and almost all Romanian output of sugarbeets, 42% of all cattle, 32% of pigs, and 40% of all sheep. Fertilizer consumption on CAPs totalled 583,000 tons in 1975, or approximately 72 kg per ha of agricultural land. 3.7 IASs are most numerous in the Plains agro-climatic zone where they operate almost 30% of the arable land. CAPs operate 80% of the arable land in the Foothills and Mountain and Tableland areas. As a consequence of superior endowment of resources, technology, and investments, growth in agri- cultural productivity has been considerably higher on IASs relative to that on CAPs. Between 1965 and 1975, total gross agricultural production on IASs rose by 77%, crop production by 35%, and livestock production by 156%. In comparison, gross agricultural output on CAPs increased by only 35% over the decade, crop production by 25%, and livestock by 84%. Output of wheat and rye in 1975 averaged 20 quintals per ha on CAPs, or 78% of the average yield obtained on IASs. Yields for maize on CAPs in the same year averaged 27.4 quintals per ha, or 22% below that recorded on IASs. In livestock production, IASs outperformed CAPs-in milk per cow, wool per sheep, and eggs per chicken by 90, 67, and 12% respectively. 3.8 Members of CAPs are assigned small plots of cooperative land, averaging 0.15 ha per active member (1975), for their own personal use. -CAP members individually farm seven percent of total agricultural land, eight percent of cropland, 38% of vineyards, and 12% of land under orchards. How- ever, reflecting the intensive use of space and relatively high yields, CAP members in 1975 produced 36% of vegetables, 10% of all cereals, 49%.of eggs, 31% of wool, 38% of milk, and 21% of all pigs. Individual cooperative members are also permitted to use collectively operated land for private purposes once -the wheat and barley harvests are completed in June/July. Maize is usually grown as the follow-up crop to support small livestock activities pursued by CAP members in family operations. Little in-kind trading takes place among CAP members since they each tend to prefer to maintain mixed rather than specialized activities on their plots mostly to satisfy family requirements. 3.9 About 1.5 million ha, or almost 10% of total agricultural land, are operated by about 150,000 private farming families. Most of this area is located in the foothills and mountains where collectivization would be dif- ficult or impractical. Private farmers work 19% of total pasture and meadow- land in Romania and over 21% of orchards. These farmers are important pro- ducers of vegetables and livestock products, accounting for 16% of all cattle, ANNEX 1 Page 6 20% of all milk, six percent of pigs, 14% of sheep, 12% of wool, and 14% of eggs (1975). Both the CAP member and the private farmer can use output from their individual units for family food requirements, contract for sales to State marketing enterprises, or sell surpluses in private markets. Within their private livestock activities, farmers in these two categories will typically produce two fattened pigs per year, slaughtering one for home consumption and selling one either to the State or at a small private market. Organization and Operation of Agricultural Production Cooperatives 3.10 The management of a CAP is the responsibility of its President, one or two Vice Presidents, a Management Council, and a General Assembly. The governing body of a CAP is its General Assembly which consists of all working adults in the CAP. The General Assembly meets quarterly and is responsible for preparing draft production, investment, and financial-plans; ratifying major contracts with suppliers, buyers, and SAMs, and deciding the allocation of CAP net income. A CAP President is elected by its General Assembly for a two-year term, subject to approval of the district's General Director for Agriculture. The General Assembly also elects representatives of technicians and CAP members for the Management Council and ratifies the President's choices for chiefs of farms and chief economist. 3.11 The Management Council, the coordinating body of the CAP, meets once or twice a week. The membership consists-of the President and Vice Presidents of the CAP, the chief economist, chiefs of farms, and the elected representa- tives of the technicians and the membership. The President and the Vice Presidents conduct day-to-day operations with assistance from the chief economist. -The latter is responsible not only for the preparation of sound preliminary investment plan but also for the accounting and financial manage- ment of CAP affairs. The chiefs of farms are the heads of the various produc- tion units within the CAP. These are assisted by a farm economist and various agricultural technicians employed by the CAP. CAPs do not generally own farm machinery or equipment but tend to rely on SAMs for these services. These enterprises are responsible for providing all farm machinery and implements to CAPs whenever required in return for fixed charges for various operations. 3.12 The net farm income of a CAP (value of total production minus cost of production excluding labor contributed by members) is allocated among three funds: (a) the Development Fund, which is at least 18% of the net income, (b) the Consumption Fund, and (c) the Socio-Cultural Fund. Allocation among the three funds is somewhat flexible and varies among CAPs. The Development Fund is a compulsory savings mechanism to provide partial financing of future investment on the CAPs as well as production expenses in the next cropping season. The latter fund is deposited with the Bank for Agriculture and Food Industry (BAFI) and earns 1.5% interest. In general, about 85% of the Con- sumption Fund is distributed among the members, eight percent toward a social security account, and seven percent for miscellaneous expenses. The General Assembly of the CAP has the power to alter the percentages to the funds in order to keep the personal incomes of members in line with personal incomes elsewhere in Romania. ANNEX I Page 7 3.13 Incomes of CAP members differ widely since they receive income from the sale of home-produced commodities, off-farm employment, as well as remuner- ation for work on CAPs. Their incomes, however, probably average lower than those of workers on IASs. Wages are computed on the basis of production norms, which vary across agricultural activities. In pig production workers are paid, for example, according to the number of piglets born per month, number of sows tended, the mortality rate, number of piglets weaned, and incremental weight gain per month. Eighty percent of the labor payment fund is usually disbursed on a monthly or semi-monthly basis. The remainder, with any bonuses, is paid at the end of the production year in March if annual targets are reached or exceeded. Labor payments are made in-kind as well as in cash. 3.14 In an effort to bring salaries for CAP members more in line with those of their IAS counterparts, a system of minimum monthly salaries was in- stituted in 1968: about 1,000 lei (US$50), 1,200 lei (US$60), and 1,50C li (US$75) for members of cereal crop units; vegetable, grape, and fruit farms; and livestock units respectively. If the Consumption Fund in any given year is low, BAFI extends loan to the CAP to ensure payment of the guaranteed salaries to members. Such a loan is usually repayable within one year and carries no interest. Organization and Operation of State Agricultural Enterprises 3.15 IASs are owned by the State and are operated and managed by employees of the Ministry of Agriculture and Food Industry (MA). A single enterprise usually consists of several operational units known as State farms. In the past, an LAS has been traditionally organized on a mixed farming basis with several farms under its control, each specializing in a particular production activity--field crops, vegetables industrial crops, fruit, milk, beef fatten- ing, pigs, etc. In recent years, however, efforts have been made to reor- ganize IASs, wherever appropriate, into "industrial-type" complexes where State enterprises and their individual farm units have been separated and reassigned to form enterprises specializing usually in only one production activity. The number of specialized LASs for pigs, poultry, or grain production has increased over the last decade. However, production of other livestock, e.g. dairy cattle and sheep, is considered more adapted to the mixed enterprise system because of its strong dependence upon land resources for pasturage and fodder. 3.16 The chief executive officer of an LAS is the Director, who is appointed by the General Director of IASs in the MA. He is assisted by the chief engineers of the farms in the LAS and by a chief economist/accountant. Other technicians required for the farms are included on the staff. The Workers' Council the governing body of the IAS consists of the top manage- ment, chiefs of the farms, representatives of the unions and the Party, as well as elected representatives of the workers. Storage facilities, transport vehicles, and farm equipment are usually owned by the IAS. ANNEX 1 Page 8 3.17 Salaries of the LAS staff are fixed by law but vary according to norms and skills; 80% of salaries is paid semi-monthly or monthly and the remainder at the end of the season, provided the planned targets have been met. If the targets are exceeded, special premiums are paid. In 1975, salary scales were increased by up to 48%, and these revised scales are scheduled to remain effective during 1976-1980 Plan period. Past and revised salary scales are shown below: Monthly Wage Increase 1974 1976-80 over 1974 Category -----(Lei)------ % Director 3,100-4,200 3,100-5,660 0-35 Farm Manager 2,300-3,800 2,540-4,375 10-15 Economist/Accountant 2,000-3,250 2,220-3,735 10-15 Farm Mechanic 1,976-2,964 2,290-3,380 16-14 Technician 1,380-1,800 2,005-2,670 45-48 Clerk 1,130-1,325 1,200-1,450 6- 9 Unskilled Worker 1,020-1,425 1,202-1,570 18-10 3.18 Net income of an LAS is defined as the gross value of production less production costs, which include costs of labor and depreciation on all capital investments in the IAS. Depreciation payments are made by the LAS to a Special Depreciation Fund within BAFI to be used as a source of financing future investments in the public sector. Normally, about 10% of net income is credited to a Consolidation Fund which is used to finance minor on-farm investments on any IAS at MA discretion. About 40% of net income is allocated to a Risk Insurance Fund, which is used to meet extraordinary losses while the remaining 50% is credited to the State budget. Net income in excess of that planned, after payment of labor premiums, is allocated among the Consolida- tion Fund, (25%) the Insurance Fund (30%) and the State budget (45%). Inter-Cooperative Associations (ICAs) 3.19 The organization of agriculture in Romania is still evolving. In addition to the reorganization of LASs on more specialized bases, some CAPs have begun to pool their resources for large-scale investments in food processing, dairy, beef fattening, pigs, and other production activities. ICAs are operated by State employees who work for wages paid out of ICA revenues. Capital required to establish ICAs is supplied by the member CAPs, or other participating entities, either from their own resources or from loans from BAFI. ICA net income is allocated to a Development Fund (30%) as well as distributed among participating units in proportion to their respective equity capital contributions (70%). 3.20 The ICA is run by an Administrative Council including delegates from participating CAPs and other production units as well as the Director hired to manage the ICA complex. The ICA is an independent legal entity capable of ANNEX I Page 9 obtaining loans directly from BAFI and establishing contracts with State marketing agencies. In 1975, there were 230 ICAs most of which were engaged in large-scale livestock production. A recent law permits the establishment of ICAs by CAPs in cooperation with IASs and other State agricultural units. Under this arrangement, the ICA benefits from LAS managerial input, infusion of equity capital from the State budget, and technical assistance from LAS personnel. Such jointly owned and operated complexes are receiving increasing priority from Government and are anticipated to be a major source of future growth in agriculture, especially in livestock production. IV. National Planning and Investment in Agriculture The Planning Process 4.1 National planning in Romania encompasses all aspects of production, marketing, investment, and finance. Rather than relying on market forces to equilibrate supply and demand and to allocate productive resources, the State assumes the role of centralized manager-planner-coordinator in order to ensure that production activities satisfy centrally delineated requirements of the society. General targets are established for the economy as a whole, e.g., growth in social product; growth in production by sector and by subsector; allocation of production between investment and consumption as well as between domestic utilization and export; distribution of investment between sectors, subsectors, and geographic regions; employment levels; price levels; and in- creases in wages and salaries. In addition, specific targets are drawn for each socialist production unit at the microeconomic level--e.g. physical volumes of production, technical coefficients of production, employment, in- vestments, expected increases in the utilization of material inputs, salaries, wages, supply and cost prices, and expected financial performance. The vehicles used in Romania for translating State priorities into detailed pro- duction targets are the Five-Year and Annual Plans for socio-economic develop- ment. The Five-Year Plans set major targets by year as well as for the total period. The Annual Plan translates Five-Year Plan targets into detailed proposals and makes adjustments in these annual targets based on performance already achieved. Directives specified in the plans are obligatory and carry legal authority. 4.2 In agriculture, the planning process begins at the farm level under the purview of the district MA Directorate as well as at the ministerial level where policy is made, organizational matters decided, and new investments determined. LASs and cooperatives prepare tentative plans for production, investment, and employment within technical and financial guidelines to be followed during the planning period. Proposed plans from each complex are reviewed at the district level before submission to the MA where proposals are aggregated into the preliminary draft national plan for presentation to the State Planning Committee. After reviewing the proposed plan for agricul- ture, correlating it with those for other sectors of the economy, and making ANNEX I Page 10 required adjustments, the State Planning Committee passes the draft plan on to the General Assembly for final approval. After passage district Directorates receive district-specific targets and under the supervision of the MA, establish plan targets for production, investment, and efficiency for specific LASs and cooperative units. Marketing centrals and State export agencies also par- ticipate in the planning process usually in an advisory capacity. They provide information to MA officials coordinating plan preparation on such topics as domestic consumption levels, future internal requirements, and export prospects for envisaged incremental production. 4.3 Once approved, investments in agriculture are financed either through allocations from State funds or from resources retained by the agri- cultural complexes. Major agricultural development works are funded within the Annual and Five-Year Plans directly from the State budget. Investments for IASs are either financed by direct interest-free allocations from the State budget funnelled through BAFI, or increasingly by long-term interest- bearing BAFI loans. LASs also utilize resources accumulating in their Con- solidation Funds for quick-yielding, smaller-scale investments. Investments in the cooperative sector are financed from the Development Fund and/or from long-term loans obtained from BAFI. Long-term investments generally include construction of major production units, mechanization, and development of perennial crop and livestock production. BAFI also grants short-term credit to these State and cooperative complexes-for working capital requirements (see Annex III for details concerning BAFI operations). Similarly, private farmers receive various kinds of financial assistance, e.g. short-term credit for purchase of fodder and longer-term credit covering the purchase of work animals and breeding stock. Objectives of the 1976-80 Five-Year Plan 4.4 The Five-Year Plan for 1976-80 was adopted into law by the General Assembly in July 1976. In the Preamble of the adoption legislation President Ceausescu explained that "the fundamental objective of the 1976-80 Five-Year Plan will be continuation of the rapid development of the equipment and material resources of the national economy and of society as a whole." Although primary emphasis is placed on investment and development within the industrial sector, intensive development and modernization of agriculture receive high priority to increase domestic supplies in line with consumption requirements, guarantee sufficient raw materials for the industrial sector, and contribute to increased foreign trade. Special emphasis has been placed on such areas as crop production, vegetable and fruit cultivation, wine production, livestock production, and land reclamation. 4.5 The approved Plan calls for an increase in gross agricultural pro- duction by 28-44%, or 3.8 to 6.2% annually, over the 1971-75 annual average. Since production over the 1971-75 period did average 25.4% higher over the preceeding five-year mean, a proposed 28% increase is considered feasible. However a growth of 44% would require performance far superior to that achieved to date. Lower and upper limit targets have also been placed on individual commodities, this variability to absorb effects of unforeseen ANNEX 1 Page 11 climatic vagaries. In general, continuation of high growth rates achieved during the 1965-75 period would enable fulfillment of lower bound targets for the 1976-80 Plan. Specifically, the Plan provides for increases of 35-51% for all cereals, 46-60% for soybeans, over 50% for most other major crops, 35-45% for all meats, and 37-47% for milk. 1/ 4.6 The 1976-80 Plan places particular emphasis on more intensive uti- lization of productive resources to achieve higher yields per hectare and increased output per animal unit. Fertilizer supplies are to be increased to permit a boost in fertilizer use from 95 to 280 kg (active substance) per ha of arable land, vineyards, and orchards. Approximately 1.2 million additional ha would be brought under irrigation, implying a 66% increase over the five-year period. Drainage works and erosion controls will likewise protect an additional two million ha. Improved breeding of livestock, espe- cially for cattle and sheep, are expected to increase yields and feed con- version efficiency. At the same time, emphasis is given to increases in production through extensive means especially in livestock, through signi- ficant growth in herd sizes over 1971-75 levels: e.g. cattle, 25%; pigs, 40-50%; and sheep and goats, 32-35%. 4.7 Real national income is projected under the 1976-80 Plan to grow by 61-68.5%, total real disposable income by 35-40%, and real wages by 18-22%. Total volume of goods available for retail sales is expected to rise by 45-47.5%. Within the food category, meat and meat product retail sales are to expand by 55-63%; milk for consumption, 65-78%; vegetables, 65-76%; fruits, 100-154%; and eggs, 50-60%. Steps are planned to ensure more regularity in all retail supplies, improved distribution of commodities throughout the country, as well as better placement and utilization of retail outlets. Similarly, livestock production is being increasingly dispersed throughout the country in accordance with regional-specific consumption requirements (see Table 3). National Investment in Agriculture Under the 1976-80 Plan 4.8 Total volume of investment in the Romanian economy over the 1976-80 period is planned at one thousand billion lei (US$50 billion) in constant prices, of which 90.8% will come from the State, 4.1% from the cooperative sector, and 5.1% from the population's own funds. Planned investment in agriculture over the period would total 116.4 billion lei, compared with 1/ It should be noted that production projections for livestock commodities, involving considerable equipment and construction investment, are ex- pressed on an investment capital commitment basis rather than a realized, year-specific basis. For example, although investment funds might be committed in 1977 for new pig complexes, output derived therefrom would not be generated until 1979-80. This incremental output, however, is stated in the Plan for year 1977. ANNEX 1 Page 12 580.5 billion lei for industry. Investments in agriculture are projected to increase to an annual average of 23.2 billion lei over the 1976-80 period compared with 15.4 billion lei and 10.3 billion lei in 1971-75 and 1966-70 respectively. Land reclamation, including irrigation, drainage, and erosion control, is scheduled to receive about 7.8 of the 23.2 billion lei 1976-80 annual average. Mechanization, animal production, and vegetable production would rank next with 6.5, 4.9, and 3.2 billion lei respectively. It should be noted that investments in land reclamation would rise by 70% over the previous five-year plan level, mechanization by 91%, animal production by 11%, and vegetable production by 113%. 4.9 In an effort to address the historically inequitable distribution of investment funds between LASs and CAPs and to disseminate technological know- how more uniformly throughout the agricultural sector, investment plans for the 1976-80 period place greater emphasis on the development of cooperative complexes. While investment in cooperatives is scheduled to increase from 4.5 billion lei (1971-75) to 7.4 billion lei (1976-80), or by 64%, investment on IASs is pro- jected to decline from 4.1 billion lei (1971-75) to 3.2 billion lei (1976-80), for a drop of 22%. Planned loans to the cooperative sector would increase by 0.6 billion lei, or by 24% over 1971-75 levels. At the same time, cooperatives will be expected to finance a greater share of their own on-farm investments under the 1976-80 Plan: 58%, in comparison with only 44% during 1971-75. Investments in Pix Production and Processing Under the 1976-80 Plan: A General Statement 4.10 Proposed investments in pig production and processing under the 1976-80 Plan would represent one component of a total investment package for the livestock subsector attempting, inter alia, to raise meat production to a 1976-80 annual average of 2.5-2.7 million tons of meat (live-weight). This target would require an increase in meat production of 35-45% over the 1971-75 average level of 1.8 million tons, or 24-33.5% over 1975 output of 2.0 million tons. Livestock herds would be upgraded and expanded to permit this growth in meat supply. With full development of the 1976-80 Plan, the cattle herd is expected to have increased 25% over the 1971-75 average, pigs by 40-50%, and sheep'and goats by 32-36%. Poultry production--broilers and layers--is also scheduled to expand over the period. In addition to supply increases attributable to herd enlargement, beef and mutton volumes would expand due to higher targeted weights at slaughtering. 4.11 As presented below, a total of 6,940 million lei has been allocated under the Plan for investments to improve the genetic quality of the national pig herd and to increase pig production capacities, as well as another 5,550 million lei to provide adequate facilities to process the projected incremental pig output. Investments in pig production to be made during the five-year period are expected to reach full production by 1983, thereby permitting a continuation of the compound five percent annual rate of growth in pig produc- tion demonstrated over the 1965-75 period. Investments would be made in large, specialized pig production complexes with an annual modal capacity of about ANNEX 1 Page 13 32,000 fattened pigs and a minimum capacity of about 16,000. The technology being proposed for these relatively large complexes is well established in Romania, and the level of efficiency in their operation is satisfactory. National Pig Production and Processing Investment Program, 1976-80 ---------------Lei Million- ------------ 1976 1977 1978 1979 1980 Total Pig Production 1,170 1,760 2,080 1,070 860 6,940 Slaughterhouse and Meat Processing Facilities 1,150 1050 1,050 1,150 1,150 5,550 Total 2,320 2,810 3,130 2,220 2,010 12,450 4.12 The proposed increase in pig production from 8.6 million pigs in 1975 to 13 million by 1983 would make a substantial contribution toward (a) a planned boost per capita meat consumption from 46 kg (fresh meat basis) in 1975 to 55-60 kg by 1980, representing a 20-30% increase; and (b) an increase in exportable balances of fresh and frozen pork and pork products. To achieve these goals the following specific objectives have been included in the 1976-80 Plan: (a) development of a sufficiently large multiplier herd, (b) maintenance of animals of high genetic quality through the use of improved breeding stock and additional development of testing and selection centers, (c) continued reorganization of pig production activities into specialized, "industrial-type" complexes to capture managerial and technical economies of scale and to facilitate transferal of technical know-how throughout the sub- sector, (d) increased dispersion of production capacity throughout the country to meet more efficiently the local consumption requirements of the population, (e) provision of adequate slaughtering and processing capacity to handle anticipated pig production levels, and (f) installation of new process- ing units and modernization of existing facilities in accordance with interna- tional sanitary standards and high operational efficiency. To support this livestock development scheme, Romania has (a) made an important policy deci- sion (1970) to forego exports of feedgrains whenever necessary in order to ensure adequate supplies for the livestock subsector, and (b) placed emphasis through the 1976-80 Plan on investments to increase feedgrain production (maize and barley) and to speed up substitution of domestically produced protein materials for imported commodities (principally soybean meal and fishmeal). 4.13 Investments in pig production included in the 1976-80 Plan would enable an expansion of the national herd to approximately 13 million pigs at full development in 1983, or by 47.5% over the 1975-83 period. Pork produc- tion would increase by 428,500 tons (live-weight) for a 44.9% increase over 1975 production levels (See Annex 2, Table 1). Project investments, encom- passing those committed under the 1976-80 Plan for 1977 and 1978, would yield 48.5% of the total incremental pork output, or 208,100 tons. Preliminary quantities of pork would be generated from Project investments beginning in 1978 and 1979, with full production achieved in 1981. Plan investments ANNEX I Page 14 committed in 1976 would reach full development by 1979, yielding 92,300 tons of pork. Those committed for 1979 and 1980 would generate an additional 128,100 tons by 1983. Assuming a total meat production level of 2.8 million tons by 1983, pork output, reaching 1.4 million tons that year, would re- present 50% of the total. 1/ Project output in 1983 would equal about 7.4% of national meat production and 26.4% of incremental meat production over 1975 levels. 2/ V. Pig Production Background 5.1 Pig rearing and fattening have a traditional importance within the agricultural sector of the Romanian economy. Not.only has consumer preference for pork provided a stimulant for increased allocation of investment capital into this subsector, but a firm and expanding feedgrain base has facilitated expansion of pig production and associated technological development. Romania over the last fifteen years has developed systems of pig production that stand alone in the world for their large scale of operation. To support this impor- tant livestock subsector, an active research program is maintained to improve the genetic base. Veterinary services-are extensive and are generally main- tained within each production complex (see Annex 4, paras 24-33). 5.2 Paralleling the general decline in agricultural production during the WW II period, the national pig herd declined from 2.8 million pigs in 1937 to 2.2 million in 1950, a drop of 21%. During the subsequent decade, however, production practically doubled, increasing at an average annual rate of seven percent. By 1970, production had risen by the same incremental amount, 2.1 million pigs, thereby yielding a national herd of 6.4 million pigs. Herd size grew to 8.8 million pigs between 1970 and 1972, there to stabilize for the remainder of the 1971-75 Plan period. Over the 1950-75 eriod, the national herd size expanded at an annual average rate of 5.7 percent (see Table 2). Over the 1950-75 period, only the poultry subsector rivaled pig production in rate of expansion. While pig production rose by 400% over the 25 years, poultry expanded by 384%. Cattle and sheep popula- tions, in contrast, grew by only 33 and 36% respectively. 5.3 During these years of general growth in pig production, the orga- nization of this livestock activity underwent significant change, in the main reflecting the concurrent general reorganization of the agricultural sector. 1/ These mission estimates are consistent with planned meat production (2.5-2.7 million tons (live weight), 1976-80 annual average) and historical trends of total meat supply composition. Over the 1971-75 period, pork represented 46-50% of total meat production. 2/ 1975 total meat production (live-weight): 2,012,000 tons. ANNEX I Page 15 In 1950, for example, when Government's program of collectivization and State-run farming was just in the formative phase, 96% of all pigs were produced on private farms and only four percent in the State and cooperative sectors. By 1960, of the total 4.3 million pigs produced, the private farmers' portion had been reduced to 51% while IASs and the cooperative sector contri- buted 18.6% and 8.5% respectively. Individual cooperative members in 1960 produced 0.9 million pigs, or 20.7% of the total. By 1970, approximately ten years after the introduction of the "industrial-type" system of production, IASs accounted for 35.1% of the 6.4 million pigs nationwide, and cooperatives 25.4%. Private farms and CAP members produced 8.2 and 28.4% of the 1970 total respectively. By 1975, IASs' share of the total pig population had increased to 38.3% while that for cooperatives grew to 31.7%. CAP members' and private farmers' portions correspondingly dropped in percentage terms to 20.8 and 7.0% respectively. Industrial-Type vs Traditional Pig Production 5.4 Beginning in 1962, the Government began a reorganization of the IAS system to collect State farms engaged in pig rearing and fattening activities under a State enterprise structure specialized exclusively in pig production. Formerly, under the traditional system, State farms would possess both breed- ing and fattening units, generally all operating on a relatively small scale. Incorporation into a specialized enterprise entailed concentration of breeding activities and rearing of weaners on one or several State farms within the enterprise where superior breeding stock could be maintained and where improve' technology and expertise could be centralized. On other satellite farms, pro- duction activities were narrowed to include only fattening of weaners supplied by the State farms within the IAS engaged in breeding and weaner production. In Romania, pigs on such complexes are generally fattened to 110 kg. "State Agricultural Enterprises for Pig Production" usually have no complementary land resources and therefore either rely on State-operated feedmills for feed requirements or in a few cases manufacture feeds on the premises from purchased inputs. To obtain quality animals required for special gilt and boar production units, the State maintains separate pure breed selection farms concentrating on performance testing. The former are engaged in cross- breeding activities to sell high performance, superior breeding stock to the specialized pig production complexes. 5.5 The following advantages accrue from the "industrial-type" system of production: (a) quality managerial and technical expertise can be con- centrated and optimally utilized in large specialized complexes; (b) a high degree of mechanization (feed and water distribution, manure disposal, ven- tilation) can be achieved, raising per capita productivity; (c) enterprises are self-stocking and the supply of weaners continuous thereby enabling the elimination of seasonal variability in production flows; (d) more uniform and guaranteed deliveries of pigs to processing facilities are possible thereby improving supplies to retail markets and the prospects for long-term contracting in export markets; (e) feed utilization efficiencies are achieved as pigs reach slaughter weight in 200-240 days rather than 280-300 under the ANNEX 1 Page 16 traditional system; (f) improved technologies can be readily utilized on a large scale; and (g) through optimal control of feed and environmental factors, the biological potential of the improved stock can be more fully realized. 5.6 In an effort to increase pig production on a crash program, 12 specialized State enterprises were organized in 1961-62 to produce annually 100,000 fattened pigs per complex. Steps were later taken on these first improved complexes to achieve greater utilization of space, e.g. greater number of farrowing pens per house, and thereby eventually to increase the number of fattened pigs produced per year. Manure removal was cited as a major problem initially encountered in these large complexes. By 1970, about 123,000 tons of pork (live-weight basis), or 20% of the national total, were produced on industrial-type complexes, exclusively in specialized LASs. In addition, about 53% of all pork production from the LAS sector in 1970 was generated on these specialized units. 5.7 After 1970, a policy decision was made to involve the cooperative sector in the industrial-type system though the formation of ICAs for pig production. The central ICA unit is responsible for breeding activities and raising weaners. At 30 kg, weaners are supplied to member CAPs for final fattening. A member CAP is expected to sell feedgrains to the ICA in accord- ance with its participatory share in. the total ICA investment. The ICA in turn sells grain to the Marketing Enterprise for Cereals and Animal Feeds for conversion into feeds. The ICA purchases back the finished feeds and allocates them as required to CAP fattening units. Part of the net income from ICA sales of fattened pigs is retained for the further development of the ICA; the balance is divided among the member CAPs proportional to their contribution to equity capital. 5.8 Recently, increased cooperation has been advocated between IASs and CAPs, and as a consequence, special associations have been formed for various production activities, including pig production. State enterprises provide 70% of the equity capital for the association and supply valuable technical assistance. LASs control breeding and weaner production operations in their facilities and then sell weaners to the member CAPs for the fattening phase. The Director of the LAS manages the operation of the association. 5.9 By 1975, 39% of all pork or 374,000 tons (live-weight basis) was produced in industrial-type complexes. Of the 225,000 tons of pork produced in the cooperative sector, 64% originated from these integrated units. At the same time, the amount of pork produced on specialized LASs climbed from 123,000 tons in 1970 to 231,000 tons by 1975, the latter representing 65% of total LAS pork production. Through investments made on specialized IAS and ICA complexes during the 1976-80 Five-Year Plan, Romania proposes to increase the share of pork production on industrial-type units to at least 62% by 1983. ANNEX 1 Page 17 Geographical Distribution of Pig Production 5.10 Article 9 of the Law on the Adoption of the Unified National Plan of Economic and Social Development for the 1976-80 period states that: "Equipment and material resources will be developed and modernized (to enable] creation in each judet [district] of livestock raising complexes to meet the judet's own needs for meat and eggs." During the early 1960s when the pig production development and modernization program was initiated, initial in- vestments were concentrated in close proximity to supplies of feeds. As demonstrated in Table 3, 60.5% of the 1974 national herd remained concentrated in twelve districts all located in the relatively rich Plains agro-climatic zone. In the same year, these twelve districts accounted for 56.6% of total maize production. 5.11 In compliance with the Five-Year Plan directive, it is proposed to develop pig production capacities nationwide to satisfy local consumption needs. With full development of new and modernized facilities financed under the 1976-80 Plan, only 26.0% of total pig production would be located in the twelve districts of the Plains zone. The regional approach to pig production was selected after analysis of three alternatives: (a) production of animals in grain areas with subsequent transport of live animals to consumption cen- ters for slaughter and processing; (b) production and processing of pigs in grain areas and shipment of meat to consumption sites; and (c) transport of. grain and feeds to pig production complexes located near consumption centers. 5.12 The first alternative was rejected because of the high risk of serious losses in shipment given periods of inclement weather hampering transport. Even under optimal conditions, shipment places a high degree of stress on the animals, causing an average weight loss of ten percent. Transport carrier space is underutilized in the process with only about 60% of space being employed. Loading and unloading also prove time- and labor- intensive. Transport of meat in carcass-form, the second option, was elimi- nated mainly on relative cost grounds. In addition to high refrigeration costs and relatively suboptimal utilization of vehiclar space, the risk of losses remains high should shipment disruptions occur en route. The third alternative was selected because of the relative cheapness of the approach. Cost of rail transport of grain runs about 30% of that for truck transport of animals, and losses due to delivery delays are greatly reduced. Also, transport of cereals lends itself to mechanical handling and enables more optimal use of space. Therefore, under the current Plan, pig production capacity in certain districts would be reduced, and expanded in others in accordance with local requirements as detailed in supplementary district- specific plans. The Energy Grain and Protein Base 5.13 With full development of project pig production facilities in 1981, an incremental quantity of 208,100 tons of pork (live-weight basis) would be generated, representing a 21.8% increase over the production level achieved in ANNEX I Page 18 1975. To produce one kg of pork live-weight, an estimated 4.7 kg of feed are required, approximately 80% of which is energy feedgrains (mostly maize and barley) and about 20% protein meals (soybean, fish, meat, bone, blood). Examination of the grain and protein base is therefore necessary to ascertain whether an increment to the pig herd of the magnitude proposed can indeed be supported. 5.14 Total area devoted to cereals declined from 6.8 to 6.2 million ha over the 1954-75 period, largely attributable to the substitution of alterna- tive crops for oats. Alternative crops receiving priority were fodder crops and soybeans for the development of the livestock sector, and to a lesser extent, pulses, vegetables, sugarbeets, sunflower, and flax. Area allocated to maize has remained relatively stable over the 21-year period, deviating annually on average less than ten percent about a mean.area of 3.3 million ha. Barley however dropped from 438,000 ha in 1954 to only 195,000 ha one decade later, thereafter to increase to 442,000 ha by 1975. Area allocated to barley cultivation gew .at.er iapidly during the 1971-75 Plan period, re- flecting increased emphasis in national planning on production of feedgrains (see Table 2). 5.15 Production of maize has risen from a 1954-56 average of 4.9 million tons to a 1971-75 average of 8.3 million tons for a total increase of 70%. Over the same period, barley production grew from 368,000 to 845,000 tons, or by a total of 130%. Not only did such increases in feedgrains enable growth in livestock production, especially in the pig and poultry subsectors, but also generated quantities of maize earmarked for export averaging 340,400 tons annually over the 1971-75 period. 5.16 Yields of maize and barley have demonstrated significant increases over the last 20 years, accounting for the gains in grain production. Per hectare yields of barley grew from a 1954-56 average of 993 to 2,341 kg in 1971-75, while that for maize rose from 1,467 to 2,677 kg. Grain yields per hectare were considerably higher on IASs than on the CAPs. Over the 1971-75 period, while maize yields averaged 3,362 kg on IASs, those on CAPs averaged only 2,666 kg. Between 1971-75, barley yields on LASs averaged 2,907 kg per ha in comparison with only 2,155 kg on CAPs. 5.17 Soybean production in Romania remained relatively low until the 1971-75 Plan period when increased emphasis was placed on self-sufficiency in high grade protein sources for development of the livestock sector. Between 1966 and 1970, area under soybeans increased from 10,000 to 79,000 ha; during the 1971-74 period soybean area rose from 147,000 to 238,000 ha. In 1975, soybean area dropped to 121,000 ha, reflecting severe damage incurred during June/July rains, hail, and floods which hampered sowing of the crop and destroyed large portions of the crop already planted. Soybean production rose from 20,000 tons in 1966 to 90,000 tons in 1970; and from 1971 to 1974, production increased from 165,000 to 298,000 tons. Although soybean area in 1975 dropped to half the 1974 level, production in 1975 declined by only 28%, reflecting satisfactory yields on planted area. Yields in soybeans have improved substantially over the 1966-75 period, from an average of 1,011 kg per ha during the 1966-70 Plan period to 1,435 kg per ha during 1971-75. ANNEX 1 Page 19 5.18 There remains considerable scope for increased production of feed- grains and soybeans in Romania. Recognizing the importance of a firm feed base to the development of the livestock sector, Romania proposes a 35-51% in- crease in cereal grains and 146-260% growth in soybean production under the 1976-80 Plan. Principal emphasis is being placed on increasing per ha yields of soybeans and maize as livestock feed requirements. As demonstrated in Table 5, although Romania has made progress in boosting yields over the last two decades, its grain productivity record remains significantly below that of other Eastern and Western European nations. Similarly, soybean yields in Romania lie considerably below those achieved in the US where yields averaged 1,772 kg per ha over the 1972-74 period. 5.19 In an effort to stimulate productivity, the Government proposes to: (a) encourage fertilizer production and use in order to raise fertilizer consumption from 95 kg per ha of arable laud in 1975 to 280 kg (active substance) by 1980; (b) bring an additional 1.2 million ha under irrigation boosting the irrigable total to about 3.0 million ha by 1980; (c) install suitable drainage facilities to improve 1.1 million ha; (d) initiate erosion control measures on about 1.0 million ha; (e) expand usable arable land through reclamation measures on 125,000 ha; (f) concentrate investments in the cooperative sector where, be- cause of limited investments in the past, the marginal returns to incremental developmental expenditures should be relatively high. Especially important are those measures designed to provide supplementary irrigation, flood control protection, and drainage. Romania's crop yields and total production have demonstrated considerable fluctuation year-to-year as a consequence of variable climatic conditions. Although in some years there may be sufficient rainfall during the important months of July and August to obtain satisfactory yields, lack of rainfall often causes yield reductions and at times complete crop failure in affected areas. Irrigation facilities would provide a high degree of insulation against low levels of rainfall. In other years, flood damage due to excessive rainfall, as experienced in June/July 1975, can adversely affect continuity in stable annual production levels. Flood protection, drainage, and erosion works should therefore contribute toward greater stability in production. 5.20 Conservatively assuming a 6.2 annual rate of growth in energy feed- grain production that would result in a total growth of 35.1% by 1980 over the 1971-75 average, projected energy grain requirements under the Project would ANNEX 1 Page 20 consume at most 22% of incremental grain production at full development. Pro- posed measures to boost crop yields, scope for achievement of these results, and proposed priority allocation of newly irrigated land to maize and soybean cultivation, support the technical feasibility of increasing production by 6.2% per year at least over the medium-term (see Table 4). 5.21 Romania remains an importer of protein meals to support livestock production. About one-half of total soybean meal utilized, or about 260,000 tons were imported in 1975, principally from the US. In 1976, this imported quantity of soybean meal was expected to diminish to 200,000 tons, and by 1980 is expected to drop to only 57,000 tons, or approximately ten percent of projected requirements. Fishmeal imports have averaged about 20,000 tons in recent years, mainly from Peru. Depending on the success obtained in efforts to raise soybean production, up to 80,000 tons of imported fishmeal will be required by 1980. At the same time, the Government is placing high priority on research programs to render Romania eventually self-sufficient in edible proteins. Collaboration with the Japanese is now in progress in the develop- ment of single-cell protein production. Emphasis is also placed on production of maize varieties with higher protein content. 5.22 As demonstrated in Table 4, at full development, project-generated animal waste product meals would provide about three percent of protein meal requirements under the Project. Projecting growth in soybean production to 1980 on the conservative basis of 19.7% per year, net incremental protein requirements could utilize up to 63% of incremental soybean output in 1980. However, given the present low production base, the scope for improvement, and the priority placed on self-sufficiency in edible proteins, production growth could easily surpass this rate of increase. Additionally, Government recog- nizes the need to import soybean meal and fishmeal to supplement domestic supplies of protein products to support its livestock sector. 5.23 To ensure timely delivery of feeds to the production complexes, the Five-Year Plan has provided funding for improvements in the internal trans- portation system. It also has given priority to silo construction as well as to modernization of on-farm storage facilities in an effort to minimize losses in grain and meal stocks. The need for increased silo facilities and improved, expanded warehouse capacity is apparent in Romania. In 1976, when production of maize was relatively high, large quantities of maize were harvested with up to about 24% moisture content and were then deposited in open temporary structures. Losses from insufficient drying and substandard storage facil- ities will result in a significant level of spoilage. The Government proposes an active program to expand silo capacity and to increase unloading capacities at existing structures to ease the backlog at the field-level. On-farm stor- age is generally limited in Romania to that needed for seed material and a 15-day stock of feed requirements. A 200 million lei program is included in the 1976-80 Plan to renovate and mechanize existing storehouses for these short-term stocks. ANNEX 1 Page 21 VI. Complementary Services 1/ ,entral for Marketing of Cereals and Animal Feeds (CMC) 6.i This State agency is responsible for the collection, storage, and dispusal of grain produced by State enterprises and cooperatives and for the conversion of feeds and protein meals into animal feed concentrates. The CMC has two branches, the Cereal Marketing Enterprise and the Trust for Feeds. The former is responsible for (a) concluding contracts with cereal production complexes, (b) drying and storing acquired grain, (c) purchasing soybeans and dispatching them for processing, (d) allocating stocks for export or to various grain processing enterprises, including the Trust for Feeds, (e) distributing stored grain to grain-deficit areas as required. The Trust for Feeds has responsibility fur the production of feed meals in its 65 feedmills. It purchases feed inputs from the Cereal Marketing enterprises, processes them, and delivers its products to livestock production units. Directors of livestock complexes relay to the directors of the feedmills information regarding feed requirements on monthly, quarterly, and annual bases; each feedmill in turn correlates projected demand and input supplies with the Trust. At present there is at least one feedmill complex in each district with up to six in selected cases. While 1976 feed production totalled 7 million tons, requirements for 1980 are projected to reach 10 million tons, necessitating the construction of an estimated ten new factories under the 1976-80 Plan. 6.2 Should shirtages develop in feed input supplies, the Institute of Research for Animal Nutrition is responsible for recommending and approving adjustments ti fixed feed formulae. If shortages arise, complexes with supe- rior quality oreeding stock, e.g. selection and testing farms, have priority access to tetter quality feeds. In such periods, State enterprises and coop- eratives receive the same adjusted rations. Premix Preparation 6.3 Romania presently blends most premix requirements for its livestock sector, although certain vitamin-mineral ingredients, fats, and milk solids must be imported. A 50,000 ton premix plant is located in Bucharest which presently blends all required premixes for the country. By 1981-85 require- ments are projected to reach 500,000 tons. It is envisaged that by then five new premix factories will be in operation to handle this need. Begin- ning in 1977, a premix factory included in the Bank-financed Sadova-Corabia Credit Project will be built in that region for operation by 1979. This plant would manufacture basic components, e.g. milk solids and fats, and blend them with vitamins, minerals, and high protein concentrates. 1/ Veterinary services and pig research are discussed separately in Annex 4. ANNEX I Page 22 Agricultural Education 6.4 Agricultural education in Romania has been organized into a national system, coordinated by the Ministries of Agriculture and Education, to provide training for specialists and skilled workers for the agricultural sector. The structure of formal education can best be divided into two branches-instruction for new personnel and that for staff already employed. The former category starts with agricultural gymnasiums, or high schools, where students are exposed to a wide range of agricultural activities as well as an opportunity to specialize. I/ One segment of these graduates proceeds directly to production complexes as skilled workers while another portion continues to agricultural universities. Agricultural universities and in- stitutes are dispersed throughout the country. The MA determines the numbers of experts needed in future years and thereby finalizes the number of seats available in the various disciplines. Post-graduate programs are also maintained at thesea a"stitutiwia. 6.5 A varied refresher program is conducted for all levels of workers in the agricultural sector. The MA organizes eight-week review courses that are compulsory for all expert staff every five years. Similarly, short- courses are given annually for experts and skilled workers in order to pass down knowledge to lower level staff from research institutions as well as to provide opportunities for discussion of mutual problems. The Center for Management Training within the University of Economics and Political Science arranges two-year advanced training courses for management staff already in the field. In addition, the MA coordinates special weekly radio and televi- sion broadcasts designed to reach the basic educational needs of CAP members. CAPs are equipped with television sets. The chief engineer is responsible for organizing CAP members to view or hear the broadcasts and for leading discussions based on the central topic of each program. 6.6 Included in the investment cost of each new complex is a training component for unit staff members. The director of the complex, for example, is appointed from the beginning of construction works and follows through their completion. Mechanical, electrical, and automative specialists for the future complex are employed by the construction contractor before the start-up of operations. To obtain familiarity with the operation of the unit, the director and other key staff also work on existing units for at least six months in all operational activities and are then expected to pass competency tests conducted by district-level MA authorities. Once a new unit is in opera- tion, skilled workers from existing complexes are brought in to provide on-the- job training for new lower-level staff for about six months. 1/ Education in Romania is compulsory to the tenth grade. ANNEX 1 Table 1 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Indices of Social Product, National Income, Fixed Assets, and Employment in Total Econom and Agriculture 119q0 - 100) Social Prodact National Income Fixed Assets Employment Agri- Agri- Agri- Agri- Total culture Total culture Total culture Total culture 1950 100 100 100 100 100 100 100 100 1955 186 163 192 170 125 110 NA NA 1960 263 171 268 169 161 127 114 100 1965 414 198 413 169 223 159 116 88 1970 629 21a 599 164 337 213 118 78 1971 701 264 680 214 368 235 119 74 1972 771 283 T48 229 398 254 119 71 1973 852 287 828 217 433 279 120 68 1974 947 293 931 213 478 302 120 65 1975 1,000 304 1,000 213 534 334 121 62 Source: Statistical Yearbook of the Socialist Republic of Romania, Bucharest, 1975. APPRAISAL OF PIG PRODUCTION AND PROCERSING PROJECT ROMANIA Time Series of Project-Related Agricultural Data Vjnit 1.938 1950 1960 1965 1970 1971 1973 1974 1975 Arable Land 1,000 ha 10,093 9,378 9,821 9,814 9,733 9,713 9,638 9,638 9,703 9,741 Irrigated Area 1,000 ha - 43.0 NA 222.6 664.6 NA KA NA 1,227.9 1,424.2 Maize Production 1,000 tons NA NA 5,531 5,877 6,535 7,850 9,817 7,397 7,440 9,241 Maize Yields 100 kg 10.5 7. 15.j 17.8 21.2 25.1 30.7 25.0 25.1 27.8 Barley Production 1,000 tons NA NA 405 485 513 789 838 730 916 952 Barley Yields 100 kg 7.2 6.1 .15.2 20.9 17.8 23.9 25.6 23.2 20.8 21.5 Soybean Production 1,003 tons NA NA 12 3 90 165 186 244 298 213 Soybean Yields 100 kg 9.4 4.1 4.8 4.8 11.4 11.2 17.1 13.4 12.5 17.6 Pig Herd 1,000 beal 2,761/1 2,197 4,300 5,365 6,359 7,742 8,785 8,987 8,566 8,813 - Sows and Gilts 1,000 head 6o6 242 545 461 682 788 881 893 825 821 Distribution of Pig Herd 1,000 head NA State Units 317.4 861.8 1,212.0 2,423.7 2,840.2 2,917.7 3,161.8 3,366.2 3,614.7 Cooperative Sector 4.4 364.5 1,228.4 1,612.9 1,955.8 2,325.1 2,540.0 2,620.2 2,795.1 Cooperative Members 35.2 -890.6 2,351.8 1,803.3 2,241.6 2,706.3 2,530.0 1,977.3 1,832.3 Private Farmers 1,840.1 2,182.7 573.2 519.5 704.1 835.9 755.0 602.2 571.2 Cooperative Associations - 0.4 - - - - - - - Total Meat Production /2 1,000 tons 760 595 943 1,047 1,349 1,396 1,627 1,840 1,977 2,012 - Pork 343 215 376 482 604 636 780 889 988 955 Total Exports of Meat + Meat Products 1,000 tons NA NA 54.9 60.8 55.3 61.3 76.7 111.1 132.6 164.8 - Fresh and Frozen Pork /3 1,000 tons 29.4 11.8 18.4 24.4 17.5 :2 51.0 182.3 - Tinned 4eats 1,000 tons 5.3 7.9 12.6 11.6 17.5 22.9 24.2 23.0 1937. Live-weight basis. Carcass basis. Source: Statistical Yearbook of the Socialist Republic of Romania, Bucharest, 1975 and 1976. APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Distribution of Population, Maize Production, and Present arxd Planned Pig Production Pig Production District Zone L Population Maize Production Pig Production, 1974 Full Development, 1970-80 Livestock Program July 1,1974 Total KAS Cooperative Se-Cor Total IAS Cooperative Sector 1,000 head 1,000 tons 1,000 head 1,000 head Alba M 400.4 74.2 103.7 24.3 14.0 605.0 90.0 28-.0 Arad P 496.0 289.9 392.6 83.7 171.8 222.0 22.0 60.0 Arges F 599.3 153.1 118.5 13.0 22.0 250.0 125.0 12.0 Bacau F 676.9 195.1 185.9 114.6 5.9 634.0 219.0 155.0 Bihor P 623.5 197.6 453.1 232.6 77.4 115.0 10.0 5.0 Bistritali Nasaud M 291.2 37.4 52.2 0.1 0.8 228.5 32.0 125.0 Botosani F 488.7 283.0 156.4 37.5 74.7 233.0 103.0 35.0 Brasov M 496.3 8.4 159.6 75.7 33.7 538.0 227.0 225.0 Braila P 374.3 418.9 436.5 218.9 163.8 320.4 32.0 198.0 (Bucharest) P 1,681.6 17.4 60.3 25.9 1.3 30.0 - - Buzau P 519.6 235.0 154.7 12.8 85.5 141.0 49.0 12.0 Caras Severin F 371.5 86.0 47.5 - 1.8 335.5 130.0 56.0 Cluz M 689.0 93.8 211.8 96.5 17.3 467.0 124.0 270.0 Constanta P 545.5 254.3 350.8 116.1 185.4 141.0 19.0 17.0 Covasna M 192.8 3.6 72.4 1.2 10.6 190.0 25.0 62.0 Dimbovita F 461.5 145.5 87.2 5.8 20.7 561.o 137.0 285.0 Dolz P 745.2 347.4 404.5 113.4 208.0 258.0 76.0 135.0 Galati F 558.3 337.0 136.7 48.6 59.2 178.0 31.0 7.0 Gorj F 330.0 105.0 104.9 8.6 5.2 126.0 10.0 - Harghita M 310.7 12.7 67.4 0.1 0.6 176.0 98.0 - Hunedoara M 514.0 33.6 105.9 58.6 0.3 842.0 364.0 380.0 folomita P 392.6 582.7 617.6 364.0 195.6 282.0 114.0 75.0 Iasi F 724.1 320.4 212.4 89.0 66.3 1,075.6 540.0 324.o 1lfov P 808.3 675.0 814.7 425.7 250.3 195.0 55.0 - Maramures M 485.2 22.0 91.8 8.1 0.4 290.0 82,0 110.0 Mehedint F 326.8 132.5 170.0 59.9 51.8 315.0 47.0 86.0 Mores M 612.0 115.5 186.3 33.2 43.4 181.5 2D.0 74.0 Neamt F 535.8 165.5 97.6 5.6 38.1 487.0 124.0 209.0 Olt P 515.5 295.5 282.5 115.3 72.2 252.0 54.o 102.0 Prahova F 785.6 167.5 125.8 44.4 20.2 335.0 68.o 105.0 Stu Mare M 387.9 78.0 205.1 59.9 47.8 119.0 15.0 - alaj M 272.3 34.3 61.5 - 1.1 177.0 45.0 32.0 SLbiu M 456.9 47.4 97.7 26.4 11.8 262.0 125.0 - Suceava M 644.9 65.8 198.8 118.0 0.4 468.0 75.0 310.0 Teleorm&n P 541.2 328.9 302.6 67.4 186.0 873.5 317.0 390.0 iimis P 647.6 460.0 717.4 349.4 256.0 355.0 54.0 230.0 T ulcea P 259.9 129.3 205.6 42.2 117.7 225.0 24.0 110.0 raslui F 477.9 257.1 117.8 13.0 52.0 197.0 16.0 4.0 Vilcea F 404.0 94.4 109.3 - 3.6 129.0 12.0 57.0 yrancea F 384.3 168.6 88.8 '.6 45.5 - - 21,029.1 7,V39.3 6 3,117.1 2,12,813.0 3,710.0 17,527.0 L Agro-CiAmatic Zone key: P Plains; F = Foothills; and N . Mountains and Tablelands. Sources: Statistical Yearbook of the Socialist Republic of Romania, Bucharest, 1975; Ministry of Agriculture and Food Industry. APPRAISAL OF PIG PRODUCTION AND PROCESSING PR(1TECT ROMANIA Projected Energy Grain and Soybean Production and Requirements under the Project Unit 1976 1977 1978 1979 1980 1981 Energy Grains Production /1 2 1,000 tons 9,764.0 10,369.4 11,012.3 11,695.1 12,420.2 13,041.2 Incremental Grain Production over 1971-75 Average 1,000 tons 570.0 1,175.4 1,818.3 2,501.1 3,226.2 3,847.2 Incremental Grain Requirements for Project / 1,000 tons - - 55.1 380.1 704.0 735.2 Incremental Requirements as of Incremental Grain Production percent - - 3.0 15.2 21.0 19.1 Soybean Production / 1,000 tons 264.8 316.9 379.4 454.1 543.6 597.9 Incremental Soybean Production over 1971-75 Average 1,000 tons 43.6 95.7 158.2 232.9 322.4 376.7 Protein Meal Requirements for the Project 15 1,000 tons - - 13.1 80.8 167.2 174.6 Blood, Meat, and Bone Meal Generated in Project /6 tons - - 30.3 1,274.1 3,957.1 5,354.9 Net Protein Requirements for the Project 1,000 tons - - 13.1 79.5 163.2 169.2 Net Protein Requirements for the Project in Soybean EquivalentsL 1,000 tons - - 16.4 -99.4 204.0 211.5 Net Protein Requirements as % of Incremental Soybean Production percent - - 10.4 42.7 63.3 56.1 1 Maize and barley. Growth rates assumed: 6.2 percent (1976-1980)) and 5 percent (1981)i projections built upon 1971-75 average production of 9,194,000 tons. /3 Grain equals 80% of feed requirement. Growth rates assumed : 19.7 percent (1976-1980); and 10 percent (1981); projections built upon 1971-75 average production of 221,200 tons. 5 Protein meal equals 19 percent of feed requirement. Equhl to 1.8 percent of live weight; includes products from cattle and calves slaughtered in Project slaughterhouses. 7In soybean processing, 20 percent of weight is exiracted as oil; therefore soybean equivalent equals 125 percent of protein meal requirement. ANN= 1 Table - APPRAISAL OF PIG PRODUCTION- AM- PROCESS IN,G PROJECT ROMAN7IA Crop Yields and Fertilizer Use in Selected Countries kg/ha Country Maize Barley Fertilizer,Use /1 -1972-1974 Average- 1972 Romania 2,617 2,390 65 Bulgaria 3,982 2,951 156 Czechoslovakia 4,386 3,425 272 Democratic Republic of Germany 2,652 4,225 388 um.y 4,131 2,953 196 Poland 3,361 2,931 205 -1971-1973 Average- 1972 EEC-9 5,150 3,813 151 Federal Republic of Germany 5,003 4,023 241 France 4,818 3,837 164 Italy 5,794 2,283 88 /1 Active substance per ha of arable land. Sources: FAO, Yearbook of Agricultural Production, Rome, 1975; . Statistical Office of the European Communities, Yearbook of Aoricultural Statistics, Llxembourg, 1975. - - ANNEX 2 Page 1 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Pig and Pork Marketing and Processing, Pricing, Pork Consumption, and Exports I. Marketing and Processing 1.1 Pork is the main meat commodity produced in Romania, reflecting domestic consumer preference for the product as well as the country's favor- able agro-climatic conditions conducive to feedgrain production. Pork pro- duction in 1938 totalled 343,000 tons, or about 45% of total meat produced. As a result of sizable reductions in the national herd during the war years, production of pork declined to only 215,000 tons in 1950 for a decrease of 37% over the 1938 level. Paralleling subsequent development and expansion of pig production, pork production rose to a high of 988,000 tons in 1974, or by a compound rate of growth of 6.6% over the 1950-74 period. In percentage terms, pork has represented an increasing share of total meat produced, rising from 36% of the total in 1950 to about 50% in 1974. Production of pork suf- fered a three percent decline in 1975 probably reflecting serious disruption of the production cycle by rains, hail, and floods that occurred during that year. By the beginning of 1976,-the herd size had grown to 8.8 million pigs, and high production records were expected to be reached in 1976 and thereafter. Organization 1.2 Within the Department of Food Industry there exists a special agency, the Meat Industrialization Trust (MIT), in charge of processing most of the beef, pork, and mutton produced in the country. The MIT is headed by a Central which acts as a coordinating unit with no direct production func- tions. MIT Central (a) coordinates the operation of 43 production enterprises throughout the cointry, (b) correlates plan targets received from the MA with input supplies, staffing, and production capacities, (c) oversees the trans- port of processed products to internal destinations or to the border for export, (d) maintains financial records and coordinates financial planning, and (c) prepares designs for facility modernization and minor expansion. The Central is controlled by a twenty-one member Council of Workers composed of the General Director of MIT, four Direction heads, and 16 representative directors of enterprises under the Central. A smaller Executive Committee handles day-to-day management of MIT operations. The Central is composed of four Directions, or departments: (a) the General Direction charged with organizational planning, staffing, training, and legal matters; (b) the Technical Direction coordinating production activities, supply of raw mate- rials (principally animals), and investment matters; (c) the Commercial Direction handling marketing activities--collection and transport of animals ANNEX 2 Page 2 for slaughter, delivery of processed products to retail outlets and export dispatch points, and inventory management; and (d) the Financial Direction coordinating financial planning, accounting, prices, and fiscal controls. Each MIT enterprise must pay a commission to the Central equal to four percent of its operating costs of production. 1.3 The district MIT enterprises are semi-autonomous units maintaining separate accounts and able to enter contractual arrangements as independent agents as long as decisions made and contracts agreed upon are complementary with fulfillment of targets given by the Central. Based on these targets, each MIT enterprise establishes contracts with IASs, production cooperatives, consumption cooperatives, individual CAP members, and private farmers. Each contract specifies the number of animals to be supplied, weight, quality, supply price, delivery date, and other conditions, and penalties covering both buyer and seller should delays be encountered in delivery. One month before collection centers assume possession of contracted animals, an MIT inspector visits the supplier's facility to test for pesticide residues in the animals. Those registering above tolerable limits are rejected. 1.4 Until 1976, individual CAP members and private producers were able to contract cattle, pigs, and sheep directly with MIT enterprise collection centers established throughout each district. Now direct contracting with these producers is done only for cattle. In the case of pigs and sheep, CAP members and private farmers now must contract with local consumption coopera- tives at State-controlled acquisition prices. The consumption cooperatives in turn hand over the contracted pigs and sheep to MIT enterprises for a commission not to exceed four percent, and then will ultimately buy back- finished meat products for retail sale in their shop facilities. 1.5 The individual producer--private farmer or CAP member--is free to sell animals to whomever desired. However, although he is free to slaughter pigs and sheep for home consumption needs, he is forbidden by law to slaughter cattle. Privately owned cattle scheduled for slaughter must be sold directly to a MIT enterprise collection center or processed in an approved abattoir. The individual producer, however, is free to dispose of his excess pigs, poultry, and sheep by contracting with the consumption cooperative, selling the live animals to other farmers, or having the animal slaughtered in a certified slaughterhouse and personally selling the meat in a peasant free market. To market meat himself, the farmer must have evidence of his producer status, veterinary certification from the slaughtering facility, and a rented, clean, distinctive coat to wear at the market. 1.6 In 1975, an estimated 46% of Romania's total meat supply, or 926,000 tons (live-weight), was generated within the private sector. About 54% of this quantity, 500,000 tons, was sold to the MIT. In 1975, about 65% of pork, 30% of poultry, and 5% of mutton produced by individual CAP members and private farmers were consumed at home or sold in the free markets. Even though these individual producers move large quantities of fruit and vege- tables through these free markets (an estimated 30-40% of national supply), ANNEX 2 Page 3 only 1-2% of the total meat supply is sold this way. Although the local popular councils maintain ceiling prices for fruits and vegetables sold in these peasant free markets, none are established for meats. 1.7 The MIT enterprise then represents the usual marketing outlet for surplus pigs, sheep, and cattle produced in the private sector. This requires that contractual price planning by MIT and price setting by Presidential decree must offer reasonably attractive prices to enable sufficiently large contract- ing with the private sector to satisfy national meat targets. At the same time, selling to a consumption cooperative and MIT enterprise assure the private farmer and CAP member of additional advantages: (a) the acquisition price is known at the time of contracting; (b) cash advances are permitted up to 45% of the final contracted value of the animals; (c) contracting enables the seller to purchase feed requirements from the consumption coope- rative at regulated prices; and (d) the consumption cooperative or BAFI branch provides short-term credit to the supplier based on these contractual arrangements. 1.8 In the future it is proposed to incorporate the private producer and the CAP member into the industrial-type pig production system discussed above. It is envisaged that specialized LASs and ICAs would eventually sell quality weaners to these producers to fatten for home consumption and sales to MIT enterprises. Feed requirements for the contracted pigs would be provided through the consumption cooperative, and the acquisition of the animals would be adjusted appropriately to reflect the value of the supplied weaners and feed. 1.9 Of the total 654,900 tons of pork (live-weight) handled by MIT in 1975, 62,000 tons or 9.5% were processed into canned hams and shoulders and other pressed ham products predominantly for export markets. During the same year, 61,800 tons (live-weight), or 1.0% of the total MIT quantity, were allo- cated to production of raw and dried salamis for domestic consumption and export. Retailing of Pork Products 1.10 The Ministry for Internal Trade (MFIT) is responsible for the internal distribution of all products for consumption. It is divided into three main branches: (a) Food Products and Public Alimentation, (b) Clothing and Shoes, and (c) Metalic Commodities, Furniture, Construction, and Fuel. MFIT submits estimates of domestic consumption requirements to the State Planning Committee during the formulation of the national plans. Thereafter, based on the Committee's assessment of feedgrain availabilities, meat supply, and export and consumption projections, quantities of pork available for internal consumption are determined and made part of each plan. Once the total consumption quantity is specified, it must be allocated among the 39 districts and Bucharest. This distribution is based on four criteria: regional average per capita income (purchasing ability), traditional food preferences, and present relative level of consumption. At the district ANNEX 2 Page 4 level, the MFIT Council of Supply must allocate the quantity of pork pro- vided under the Plan (a) among the various counties and municipalities and (b) between State and cooperative retail outlets. At the local level, there is a Commercial Director within the local governing body, the popular council. He and his staff receive information by quarter concerning quanti- ties of pork to be received. The Director and the popular council must then (a) divide the allocation on weekly and daily bases, (b) ensure that pork is delivered in accordance with contracts between the MFIT and MIT from the latter's enterprises; and (c) supervise an equitable distribution of the meat supply in accordance with MFIT guidelines. 1.11 Pork, mutton, and beef are supplied under contract with MIT enter- prises to State shops and consumption cooperatives. Meat can also be pur- chased from Agro-Cooperatives 1/, peasant free markets, and a small number of private shops. State-controlled retail outlets--State shops and consump- tion cooperatives--are organized as (a) specialized shops handling pre- packaged meats, fats, and organs and providing custom butchering service as requested; (b) general food units or multi-product shops having meat sections where frozen and processed meats are usually available; (c) open markets providing a variety of products and maintaining a separate section for meat commodities. Throughout Romania there are 17,500 retail shops in which one may purchase meat, 350 located in Bucharest alone. General food stores are most common throughout the country. Business hours are not uniform but rather are fixed by each local popular council. Supplies of meat available in State- controlled retail outlets are not uniformly distributed throughout each week period, but rather are managed by the popular council under supervision from the district Council of Supply. Meats are available on a very limited basis on Sundays, Mondays, and Tuesdays, with a gradual increase in supplies to a weekly maximum on Saturdays. Romanian officials explained that this skewed distribution reflects the lack of slaughtering and processing on Sundays as well as the "traditional" practice and preference of the purchaser in Romania to shop for meat toward the end of the week. Shortages in the retail market are evidenced by the relatively low per capita consumption of total meat and pork in Romania (46 kg and 23 kg respectively in 1975) and also by the long queues of shoppers at food outlets even when meat supplies are greater. 1.12 The following flow diagram summarizes the distribution of pork through the production and processing system for 1975. Quantities have been converted to a uniform live-weight basis expressed in tons. 1/ Associations of Inter-Cooperatives for retail sale of produce. ANNEX 2 Page 5 Distribution of Pork, 1975 (in live-weight tons) Socialist Pig 1975 Production Total Private Sector Pig Production (IASs, CAPs, ICAs) (Private farmers, CAP members) 583,000 (61%) fl 955,000 372,000 (39%) (10%) (90%) (35%) 61% (4%) Processed on Socialist Produc- tion Complexes Sales Sales to and Retailed to MIT Consumption Home Peasant Locally Enterprises Coops Consumption Free Markets 58,300 (6%) 524,700 (55%) 130,200 (14%) 225,700 (24%) 16,300 (2%) (80%) 1 (20%) MIT Total 654,900 (69%) (78%) (22%) State Shops, Consumption Coops (for retail) Exports 514,100 (54%) 140,800 (15%) (62%) (38%) (78%) (22%) Tinned Meat + Tinned Meat Fresh, Frozen and Sausages Fresh, Frozen and Sausages 318,600 (33%) 195,500 (20%) 109,700 (11%) 31,100 (3%) /1 Percentage to the right of each quantity represents percentage of total 1975 production. These have been rounded to nearest percent. ANNEX 2 Page 6 II. Agricultural Prices Introduction 2.1 Prices of all production in Romania, at both the farmgate/ex-factory and retail levels, are established and controlled by the State. A major tenet of Romanian economic policy is to maintain stable price levels. Retail prices in the aggregate increased by less than three percent over the 1971-75 period and are expected to increase by approximately five percent between 1976 and 1980. The prices of essential goods, including food products, are kept rela- tively low, and retail prices of some goods, e.g. bread, are unchanged since the early 1950's. Producer (supply) prices are also kept stable over at least one planning period: between 1974-76, producer prices were revised for the first time since 1963 to reflect changes in costs and technology, both internal and international. In addition to fixed producer prices for socia- list entities (takeover prices for IASs and contract prices for cooperatives), acquisition prices are established to cover produce sold to State marketing agencies by individual CAP members, private farmers (see Annex 2, paras 1.6-1.7), and CAPs (for production in excess of contracted quantities). 2.2 Retail prices for basic foods (e.g. bread and meat) are fixed by the State Committee for Prices which is established on the level of the Council of Ministers. Prices for food commodities which are considered of less importance to the population are set by MFIT (e.g. canned vegetables). Food products within a third category (e.g. sweets) are priced by the popular councils within limits fixed by MFIT. Prices for fruit and vegetables may be adjusted seasonally by the popular councils also within limits established by MFIT. In addition to retail prices, "rebate percentages" are decided by the State; these indirectly determine the price retailers pay to processors, producers, and wholesale organizations. The rebate percentage is to cover all marketing expenses. To a limited degree there exists a free market price at which private farmers and individual CAP members sell their products in peasant free markets. These prices are permitted to fluctuate with supply and demand within certain limits specified by local popular councils (meat has traditionally been exempted from such ceiling price controls). Price Differentiation Between the State and Cooperative Sectors 2.3 An interesting feature of the Romanian economic system is the dif- ferentiation of prices for many homogeneous commodities produced in the State and cooperative sectors. 1/ 1/ Differentiation is additionally made on qualitative, regional, and seasonal bases. ANNEX 2 Page 7 Differentiation of Feedmill Selling Prices for Feed Between State Enterprise and Cooperative Buyers (lei/ton) Difference Feed State (in % of prices paid Category Cooperatives Enterprises by State Enterprise) 01 3,482 3,212 8.6 02 2,307 1,988 16.0 03 1,783 1,414 26.0 04 1,675 1,268 32.0 05 1,594 1,253 27..2 06 1,594 1,253 27.2 In the case of the pork production activity cycle, the comparison of prices for inputs and outputs of State enterprises with those for cooperatives reveals that the largest price differential exists at the grain production level and decreases as the conversion approaches meat processing (see preced- ing and following tables). At the final stage, retail prices for meat and meat products are the same regardless of their place of origin. 2.4 Because of the Romanian system of planning and allocating resources, the differential pricing system is reflected, not by cooperatives specializing in grain and LASs in pork, but by differentials in financial rates of return in similar production activities. A main reason given for the split pricing structure is that cooperatives are allowed to get higher prices because costs in the cooperative sector are generally higher than those in the State sector, which generally has better access to improved technology and investment capi- tal. Production costs in cooperatives tend to be higher reflecting lower efficiency levels, less mechanization, and higher input prices (Annex 1, paras 3.5-3.7). The differences between prices for power, gas, and other supplies paid by cooperatives and State enterprises represents a tax element, omitted in the case of the State sector. It is argued by the Romanians that the margins between costs and prices in the State and cooperative sectors are not equal. The margin for the cooperative sector is reportedly set relatively narrow in order to induce greater technical efficiency. It must be borne in mind that a portion of the generally higher net income of the State enterprise- representing the tax equivalent--would be shown as a cost in a rate of return calculation for a cooperative. In this sense, the pricing structure reflects a policy decision to collect funds for the State budget from economic units in the form of taxes on inputs utilized by cooperatives, and in the form of net income transfers in the case of State enterprises. ANNEX 2 Page 8 Build-up of Prices (lei) Cooperative State Difference as % Consumer Unit (tons) Sector Sector of State sector Price fresh pork /2 20,800 20,800 - Processing Plant live weight pork 12,000 10,500 12.5 Pig Rearing I& Fattening t feed fA 2,307-1,594 1,988-1,253 16-32.0 Feed Mill t maize 1,150 800 43.7 Grain, Producers /I Varying according to feed category; figures do not include category 01. /2 Carcass basis. ANNEX 2 Page 9 III. Pork Consumption 3.1 Pork represents a major component of the Romanian diet and a pre- ferred commodity by the Romanian consumer. Over the last decade, pork has represented half of all meat consumed per capita. In 1965, of the 27 kg total meat consumed per capita (fresh meat basis), 13.5 kg were pork and pork products. By 1970, total meat and pork consumption had increased by 14.8% to 31 kg and 15.5 kg respectively. Meat and pork consumption per capita in 1975 was 46 and 23 kg respectively, 48.4% above 1970 levels. Along with eggs and other meat products, pork therefore represents a major source of high grade protein in a diet marked by relatively high cereal consumption and intake of protein of vegetable origin. MFIT estimated in 1972 that only 20% and 39% of total calorie and protein consumption respectively were of animal origin. 3.2 MFIT reports that consumers buying from the State-controlled retail market in 1975, purchased 62% of total pork so retailed in fresh and frozen form, 31% as salamis and sausages, and 7% as canned meats. That portion of the population relying on home production or the peasant free markets usually consumes pork in fresh form or preserved through local techniques which vary regionally. In colder areas, freezing for several months generally is pos- sible. In other sections of the country, pork is often smoked, dried, or fried and preserved in hardened fat. Preservation of pork in the summer months presents a particular problem for rural residents lacking refrigeration facilities. Such individuals are then usually dependent upon State-controlled shops for any pork requirements. 3.3 Although urban residents generally attempt-to eat meat every day for lunch and supper, rural residents are known to have meatless days; many rural individuals abstain from consuming meat on Wednesdays and Fridays because of traditional religious restrictions. For special events and holi- days, meat is an important part of the meal, and pork is usually served. 3.4 Comparisons of per capita consumption of total meat and pork in Romania and other Eastern European countries having similar tastes and levels of per capita income reveal a generally lower relative consumption level in Romania. According to FAQ data, Romania ranked lowest of these Eastern European countries in total meat consumption and second lowest in pork, 1964-66. UNESC data suggest that the pork consumption gap continued in 1975. ANNEX 2 Page 10 Per Capita Pork Consumption (kg/yr) (Fresh meat basis) 1964-1966 Average 1975 /2 Total Meat Pigmeat Pigmeat Romania (FAO) 38.5 19.0 22.6 Romania (MFIT) /1 27.0 13.5 23.0 Hungary 51.4 27.4 41.2 Poland 50.5 31.6 40.9 Bulgaria 40.6 16.0 n.a. Czechoslovakia 60.8 33.5 38.1 German Democratic Republic (GDR) 52.4 38.1 47.8 /1 1965. /2 UNESC. Sources: FAO, Agricultural Commodity Projections, 1970-1980, vol. II, Rome, 1971, pp. 127-8; Ministry for Internal Trade, Bucharest; UNESC Economic Commission for Europe, The European Market for Meat and Livestock in 1975 and 1976, AGRIC/R.47, November 25, 1976, p.41. Meat consumption levels in Romania fall far below those achieved in other European countries where pork also remains a preferred food by most consumers. While recognizing differences in per capita income levels, comparisons of consumption levels are useful and indicative of potential consumption targets as economic development and income growth occur in Romania. 1/ 1/ Per capita real income rose 7.9% p.a., 1971-75 and is scheduled to in- crease 6.2-7.0% p.a. under the 1976-80 Plan. Although no estimate of income elasticity of demand for pork could be found for Romania, it is considered positive and relatively high, probably ranging between .30 and .40. FAQ estimates for nearby countries are of relevance since similar income levels and consumer preferences prevail: Poland: .30; USSR: .40; Eastern European average: .33. ANNEX 2 Page 11 Per Capita Pork Consumption (kg/yr) 1974 (Fresh meat basis) Total Meat Pork Romania (1975) /1 46 23 EC-9 81 33 Federal Republic of Germany (FRG) 89 50 France 97 33 Italy 65 17 Netherlands 71 34 Belgium/Luxembourg 92 39 United Kingdom 74 26 Ireland 92 32 Denmark 64 35 /1 Ministry for Internal Trade, Bucharest. Source: Statistical Office of the European Communities, Yearbook of Agricultural Statistics, Luxembourg, 1975, p. 200. Total per capita meat consumption in Romania (1975) was 28.1% below that recorded in Denmark and 43.2% below the EC-9 average (1974). Although Romanian*pork consumption surpassed that in Italy (1974) by 35.3%, it was 30.3% below the EC-9 1974 average. 3.5 The Five-Year Plan for 1976-80 proposes an expansion of domestic supplies of food commodities, and particularly meat, to improve dietary standards, make adequate provision for a growing and increasingly urbanized population, and raise per capita consumption levels of important dietary items. Toward this end, the Plan has established a target of a 20-30% in- crease in meat consumption per inhabitant over the 1976-80 period. Proposing to keep consumption of each respective meat commodity in relatively constant proportions through 1980, the Government supports an increase in total meat consumption per capita from 46 kg in 1975 to 55-60 kg by 1980, including a growth in pork consumption from 23 to 29 kg over the five-year period. To achieve the latter, internal supplies of pork would have to be increased by an estimated 264,600 tons (live-weight) by 1980, and keeping per capita con- sumption levels constant, an estimated 297,500 tons in 1983. Maintaining per capita intake constant, domestic supplies of pork in 1983 would need to be expanded about 36.5% over those so allocated in 1975. 1/ 1/ One percent population growth rate assumed. * ANNEX 2 Page 12 3.6 The project would make a major contribution toward fulfillment of this planned 20-30% increase in per capita meat consumption over the 1976-80 period. Incremental pork derived from the project would total 208,100 tons (live-weight) in 1981 or 75.5% of an estimated 275,717 tons required for domestic consumption in that year (see Table 1). With full development of total 1976-80 Plan investments in 1983, an estimated 69.4% of the total incremental pork production equalling 428,500 tons must be allocated to the home market to maintain per capita consumption at the 1976-80 planned level of 29 kg. By 1983, an excess incremental supply of 131,100 tons of pork, approximately equal to the live-weight equivalent of 1975 pork exports, would be generated. This excess incremental quantity, valued at 1976 f.o.b. Romanian prices, would be worth an estimated US$158.3 million equivalent. Should this incremental amount have to be diverted to internal markets due to diminished opportunities for export, it would enable an increase in pork consumption from 29.0 kg per capita in 1975 to 32.42 kg in 1983. Even with this additional amount, per capita pork consumption in Romania (1983) would still be below those levels achieved in Czechoslovakia (33.5 kg) and GDR (38.1 kg) in 1964-66. A per capita pork consumption level of 32.42 kg by 1983 would enable Romania to attain the EEC-9 1974 average and the level recorded in France the same year. 3.7 To support a per capita meat consumption of 55-60 kg or a 20-30% in- crease over the 1975 level, 353-529 thousand tons of incremental meat supplies must be provided for domestic use in 1983. If total meat production totals 2.8 million tons by 1983, 1/ implying a 788,000 ton increment over 1975 levels, 44.8-67.1% of this increment would be required to support domestic consumption targets. If Romania in that year were unable to find suitable markets internationally for the balance and were forced to divert it to internal use, per capita consumption of meat in 1983 would rise to 66.6 kg. This level would be 5.8 kg higher than that recorded in Czechoslovakia in 1964-66 and on par with 1974 figures for Italy and Denmark, the two EEC countries recording the lowest per capita meat consumption in that year. While this meat consumption amount would be 11-21% above 1976-80 Plan targets, it would still be 18% below the 1974 EC-9 average (See preceeding table). IV. Pork Exports 4.1 Meat exports from Romania rose significantly after 1970. In 1960 meat exports totalled only 54,900 tons and after rising to 60,800 by 1965, declined to 55,300 tons by 1970. After Government placed increased emphasis on this export category as an important generator of convertible foreign exchange, meat exports rose to 164,800 tons by 1975, for a compound rate of growth of 24.4% over the 1971-75 period. Fresh and frozen beef exports rose from 22,600 tons in 1970 to 48,300 tons in 1974, thereafter dropping to 38,100 tons in 1975, at least in part in response to 1974 EEC import restrictions 1/ Mission estimate. ANNEX 2 Page 13 imposed on foreign beef. Fresh and frozen pork exports totalling 17,300 tons in 1970, grew to 82,300 tons by 1975 representing half of the total meat ex- port volume. Tinned meats and sausage exports, composed predominantly of pork, rose from 12,600 tons in 1970 to 24,200 tons in 1974 and 23,000 tons in 1975. Converted from carcass and processed meat bases, an estimated total of 140,800 tons of pork (live-weight basis) were exported in 1975 representing about 14.2% of total production. About 78% of this pork export total was sold in fresh and frozen form, the balance as tinned meat and sausages. Although detailed data concerning the geographical distribution of Romanian meat ex- ports were not available to the mission, fragmented information suggests that (a) Italy, France, and FRG represent the major buyers of fresh and frozen Romanian pork; (b) US for canned hams and pork loins; (c) FRG, the Netherlands, Sweden, and UK for other canned meat; and (d) FRG, Austria, and Sweden for sausages. Organization of Pork Export 4.2 Foreign trade is a State monopoly in Romania. Prodexport, a State- run trading Company, is the only agency authorized to sign contracts with foreign buyers for the purchase of live sheep and cattle, beef, pork, animal fats, animal offals and by-products, poultry, eggs, tinned meat and meat pro- ducts, dairy products, sunflower oil, sugar, honey, tobacco and cigarettes, fish, and wild game products. Currently, Prodexport contracts with firms - in 51 countries, distributing its total export volume as follows: Western Europe, 77%; Near and Middle East, 12%; USSR and other Eastern European countries, 5%; and the US, 2%. Maintaining four branch offices within Romania as well as 11 permanent offices abroad, Prodexport searches for new markets, advises economic planners concerning the world market situation, concludes contracts with foreign buyers, and contracts with various centrals for the supply of goods for export. 4.3 Prodexport maintains five departments dealing with meat exports: (a) Marketing of Pork and Pork Products, (b) Marketing Intelligence, (c) Meat Specialist, (d) Canned Hams, and (e) Fresh Meat Products. Although Prodexport is solely authorized to conclude contracts with buyers abroad, MIT must par- ticipate in negotiations and countersign contracts involving large and/or long-term orders. For all meat commodities processed by MIT, Prodexport concludes annual contracts with the Central specifying the quantities to be exported and the terms of delivery. The MIT then is responsible for produc- tion of the export commodities and their delivery to the border point for shipment to the buyer. For services rendered the MIT must pay a commission to Prodexport of 2% of the export value of the goods converted into lei at the official rate (4.97 lei = US$1.00). This commission covers operating costs of Prodexport, advertising, commercial samples, insurance, and consulate charges incurred for export privileges to Middle Eastern markets. Once a contract is signed, MIT will assign responsibility for filling the export order to its regional enterprises based on their technical capability of producing the specified goods, geographical location, and relative workload. With minor exceptions, pork products are exported under Romanian brand names. Orders ANNEX 2 Page 14 involving special processing or packaging are accepted in which cases appro- priate upward adjustment is made to the ex-factory price of the products. MA maintains a fleet of trucks employed exclusively in the transport of export commodities; the fleet in 1976 numbered 600 vehicles, and an additional 900 are proposed under the 1976-80 Plan. 4.4 MIT gets no foreign exchange for goods exported, but rather receives the ex-factory price in lei (with adjustments for the Prodexport commission, transport, and any special packaging) through a financial transaction between the Romanian Bank for Foreign Trade and BAFI which maintains the MIT account. If MIT targets are met or exceeded, it is eligible for an export incentive bonus equal to 15-20% of the lei equivalent of the dollar value of pork exported above that specified in the annual development plan (other bonus rates: 15-20% for beef, and 30% for lamb and mutton). Prospects for Increased Exports of Pork 4.5 Although Romanian exports of pork have expanded rapidly over the last five years, the prospects for continued expansion, especially for the medium- to long-term are difficult to assess given the relative rapidity with which pig breeding herds can be expanded in importing countries, potential competition in the international market, potential import barriers, and other economic factors. Unlike cattle and sheep which are less prolific, pigs reproduce relatively quickly and turn out large litters which enables rapid buildup of national herds and domestic pork production capacities. Romania presently enjoys net exporter status with regard to energy feeds such as maize. Although domestic generation of required feedgrains is strong point in Romania's favor with regard to pork production, several EC countries, notably France, Italy and FRG, have acknowledged capability for increasing production of feedgrains given adjustment in the relative prices of maize and wheat within the EC. Romania also enjoys a cheap labor pool relative to that available in other pig producing countries. However, such countries have evidenced higher pig output-employee efficiency ratios which probably compen- sate for higher labor costs (see Annex 4, para 15). In addition, protective measures to insulate domestic producers in many cases obviate any cost advan- tage Romania might enjoy. The possibility of pig and pork producer demands for more stringent import restrictions -cannot be ruled out should inflows of foreign pork expand significantly, e.g. EC and US. Although pork producers are termed as often less organized and less politically motivated than their counterparts in beef production, increased imports of pork could result in import controls similar to the 1974 EC ban on imported beef and recent trade restrictions on cheap beef imports into the US. EC officials summarized that relatively small quantities of specialty pork products and some primal cuts for further processing would continue to be demanded from Romanian and other suppliers, but large imports were not envisaged for the future. 4.6 In 1974 when the EC erected trade barriers to halt large imports of beef, Prodexport was able to (a) substitute pork for beef exports, (b) absorb quantities of beef originally earmarked for export on the internal market, and (c) establish tied sales arrangements with Middle Eastern buyers ANNEX 2 Page 15 of Romanian lamb. Now the Middle East continues a major market for Romania as beef has gained consumer acceptance. Although reallocation of exportable pork for home market utilization is considered feasible should trade barriers be raised (see para 3.6), international market substitution would prove more difficult for pork products than was the case for beef. Prodexport maintains that some pork is presently being imported by Arab and Moslem countries; however prospects for large-scale purchases in the future, even with high income growth, appear limited. The EC Market 4.7 The EC is practically self-sufficient in pork and while importing relatively small quantities from outside, the EC has concurrently been ex- porting pork outside the Community. Production of pork totalled 8.4 million tons (carcass basis) 1/ in 1974 and 8.3 million tons the following year. Analysts attribute this contraction within the EC to (a) the low profit- ability of pork production due to significantly higher prices for imported feedgrains and to reduced market prices for slaughtered pigs resulting from relatively high EEC production levels in 1974; (b) the adverse effect of the generally depressed economic climate; (c) the oversupplied beef market and consumer substitution of beef for pork, and (d) a switch in Denmark out of pork to more profitable dairy activities. Exports outside the EC were 271,00 and 234,000 tons in 1974 and 1975 respectively. Imports into.the Community were 352,000 tons in 1974 and 392,000 tons in 1975. While imports grew by 11.4%, intra-Community trade in pork rose from 1.56 million tons in 1974 to 1.59 million tons the following year. Self-sufficiency indices therefore stood at 99.0 and 97.5% in 1974 and 1975 respectively. Imports of pork in 1975 included 60,000 tons of live pigs (carcass basis), 180,000 tons fresh and frozen pork, 78,000 tons lard, 48,000 tons offals, and 26,000 tons processed meats. Major foreign suppliers in 1975 were the German Democratic Republic (GDR) (87,000 tons), Romania (63,000 tons). Hungary (62,000 tops), US (46,000 tons), Poland (42,000 tons), People's Republic of China (22,000 tons), Sweden (17,000 tons), and Bulgaria (12,000 tons). Romania's exports to the EC rose from 38,000 tons in 1974 to 63,000 tons in 1975 as exports from the US, Poland, Sweden, and Spain declined. Exports of the EC to outside markets in 1975 included 41,000 tons of fresh and frozen pork, 23,000 tons of lard, 15,000 tons of offals, and 192,000 tons of processed meat. EC pork was shipped to the following principal foreign markets in 1975: US (78,000 tons), Japan (30,000 tons), Cuba (17,000 tons) and Sweden (16,000 tons). 4.8 The EC establishes a high level of absolute protection for its pork producers which has favored the expansion of intra-EC transfers of pork, especially from the Netherlands and Belgium, at the expense of third countries. Protective mechanisms for fresh and frozen pork include the basic variable levy and the supplementary levy linked to a derived minimum import price or "sluice gate price." The basic variable levy placed on all incoming fresh and frozen pork corresponds to the levy placed on the quantity of grain assumed 1/ Equivalent to 11.2 million tons live-weight. ANNEX 2 Page 16 necessary to produce pork, plus an additional margin of protection. 1/ "The basic levy thus compensates EC producers for using higher cost domestic grain as well as providing additional protection. In fact, efficient producers are overcompensated for high grain costs, since the EC assumes a greater quantity of grain than is required by efficient producers." 2/ To ensure absolute preference for domestic pork, a sluice-gate price is calculated representing the "fair" cost of third country products delivered to the EC. Calculation is based on the assumption of higher feed requirements than efficient third country producers actually require. Outside products offered to the EEC at less than the sluice-gate price are subject to an offsetting supplementary levy. The supplementary levy is a short-term instrument invoked only when violations of the sluice-gate price are observed. This additional levy, last utilized in 1975, may apply to imports from all countries or only to those from countries whose products do not meet the sluice-gate price. Special sup- plier agreements have been established with Eastern European countries including Romania (but excluding GDR 3/ and USSR), in which exporters promise to control export prices and not to undercut the sluice-gate price; in return, the EC exempts these special suppliers from supplementary levies. Sluice-gate prices and basic levies are published every three months. Supplementary levies are reviewed more often and adjusted as required. Romanian fresh pork is excluded from British, Irish, and Danish markets because of protective regulations prohibiting importation from countries reporting incidence of swine fever. 4.9 Demand for pork within the EC is likely to increase in the future in response to an observed rate of population growth of 0.7% (EC-9, 1958-74) and a positive income elasticity of demand of about .38%. While the EC re- presents a potential market for future Romanian export expansion, especially in processed pork products, such growth could be constrained by envisaged growth of pork production within the EC and protective measures designed to favor intra-Community trade. Economic recession and simultaneous reductions in beef prices because of the 1974 beef glut depressed demand for pork at a time when the EC pig herd had been over-expanded. As a consequence of lower prices and increased grain prices, pork production was cut substantially from 1974 levels prior to the drought. The profitability of pig production, however, has been improving significantly in Western Europe since mid-1975. In response to a reduction of feedgrain prices on the world market, some 1/ Calculated on the basis of an estimated feed-meat conversion ratio and weighted average of sliding scale customs tariffs on various feedgrains. The tariff on each respective grain is set according to the difference between the EC threshold price, expressed as the cif price Rotterdam, and the world market price. 2/ USDA Foreign Agricultural Service, The Common Agricultural Policy of the European Community, FAS M-255, Washington, November 1973, p. 11. 3/ GDR is regarded and treated by the EC as part of a unified Germany rather than as a separate sovereign entity. Therefore, bilateral agreements are not possible exclusively with GDR. ANNEX 2 Page 17 improvement in the general economic climate, depletion of the beef glut, and generally higher pork prices, an expansion in the EC pig breeding herd and pork production were expected for 1976. Even in Italy, a major buyer of Romanian pork, the pig herd expanded by 2% by the beginning of 1976 over 1975 levels and breeding stock expanded by 1%. EC officials envisage a gradual adjustment in the wheat-corn price ratio to remove a general over-supply of wheat and to curb imports of feedgrains. France, West Germany, and Italy are likely to expand corn production should these relative prices be changed. Expansion and renovation of pig production capacity with the concurrent elimination of the small, relatively inefficient producer are proposed to attain higher levels of technical efficiency. The table below summarizes April 1976 forecasts for 1976 EC production and provides indicators for 1977. USDA in November 1976 forecasted a 3.2% increase in total EC pork production for 1976 over 1975 levels. Forecasted Percentage Changes in EC Pig and Pork Production, 1976 Pig Herd, Breeding Stock, Annual Pig Slaugh- Pork Beginning 1976 Beginning 1976 Pig Crop tered Production Belgium/Luxembourg * 1 6 4 4 Denmark '-2 3 4 -2 -1- France 1 1 7 2 2 West Germany -2 2 1 * * Ireland 11 25 14 14 20 Italy 2 1 5 2 4 The Netherlands 2 5 6 5 4 United Kingdom -2 6 9 5 6 * Negligible. Source: USDA Foreign Agricultural Service, Foreign Agricultural Circular: Livestock and Meat, FLM 3-76, Washington, April 1976. The US Market 4.10 The US is a net importer of pork. While exporting mainly fresh and frozen pork as well as live pigs for slaughter, the US imports pork, over 95% of which is in the form of canned hams and shoulders. Commercial production of pork declined from a 1971 level of 6.7 million tons (carcass basis) 1/ to 6.2 and 5.8 million tons in 1972 and 1973 respectively in response to falling pig prices during the 1969-71 period. Production of pork increased in 1974 to 6.3 million tons reflecting higher 1972 to mid-1973 hog-corn price 1/ Unlike in Europe where head is retained on the carcass, the head is removed in processing in the US, implying a carcass-live-weight ratio of about 0.65 in the US, vs. 0.75 in Europe. Therefore, 5.5 million tons carcass basis in the US tr,nslates to 8.46 million tons live-weight. ANNEX 2 Page 18 ratios 1/ and an earlier buildup of the breeding herd. With substantial in- crease in world grain prices and generally low hog prices in 1974, the hog- corn price ratio dipped to an annual average of 11.3, down from 19.3 the previous year, resulting in a decrease in 1975 pork production to 5.1 million tons. Production in 1976 was expected to increase about 8% with improvement in the general economic climate, reductions in grain prices from 1974 highs, and an increase in 1975 through mid-1976 in the hog-corn price ratio (1975 annual average: 16.9). With relatively large pork supplies in 1976, farm prices for pigs demonstrated significant decline after the second quarter of 1976. Because of a relatively large number of farrowings reported during summer and fall 1976, sharp gains in pork production should continue through mid-1977. In response to generally lower prices, breeding herd curtailment began September and October 1976 with a relatively large number of boars, gilts, and sows sold for slaughter. Minimal increases in prices are expected in early 1977 as a large number of pigs move to slaughter and feedlot beef inventories could be further reduced. Pork production is anticipated to increase during the second half of 1977 but at a slower rate than that pro- jected for the January-June period. 4.11 US trade in pork over the 1967-75 period can be summarized as follows: US Pork Exports and Imports Carcass Equivalent, in Tons Exports (A) Imports (B) (A)/(B) 1967 26,800 177,800 .151 1968 44,100 188,700 .234 1969 74,500 185,500 .402 1970 33,500 203,700 .164 1971 34,100 207,700 .164 1972 51,800 230,400 .225 1973 80,100 233,100 .344 1974 49,100 213,200 .230 1975 /l 99,300 194,600 .510 /1 Preliminary. Source: USDA, Livestock and Meat Statistics: Supplement for 1975, Bulletin No. 522, Washington, June, 1976, pp. 161-2. 1/ Number of bushels of corn equal in value to 100 lbs of pork, live-weight. ANNEX 2 Page 19 Exports of pork have generally been in fresh and frozen form with Japan and Canada representing the major foreign markets for US pork. Preliminary es- timates for 1975 indicate that Canadian imports of US pork for that year in- creased 39% over the 1974 level of 26,500 tons (carcass basis). Over the same period, Japanese imports rose from 11,200 tons in 1974 to 52,500 tons in 1975. 4.12 Imports of pork have mostly been in the form of canned hams and shoulders. As demonstrated above, imports have remained rather insensitive to changes in US supplies and have shown rather steady growth over the 1967- 1973 period. Imports over these years rose a total of 31.1%, or by a compound rate of growth of 4.6% per annum. Reflecting general economic conditions, imports of pork declined to an estimated 194,600 tons in 1975, a 16.5% drop from 1973 levels. Denmark and the Netherlands have been traditionally large suppliers of pork to the US. In 1971, for example, Denmark and the Netherlands provided 35.9 and 23.1% respectively of total pork imports. In response to world-wide recession and internal reductions in the pig herd size, Denmark reduced pork exports to the US by 34.3% (1973-75), the Netherlands by 25.5%, and Canada, by 45.3%. Poland, providing 30,200 tons in 1972, attempted to gain a larger share of the US market by increasing exports to 36,400 tons in 1975. Polish hams and shoulders in 1975 represented 24.5% of US pork imports. Romanian canned hams and shoulders shipped to the US totalled 4,887 tons (carcass equivalent) in 1974 and 4,271 tons in 1975, representing only 2.2% of total pork imports in each year. 4.13 Increasing awareness of the dangers of high fat and cholesterol consumption, economic recession, and traditional preferences for beef have doubtless constrained growth in pork consumption in the US. USDA statistics presented below show that while total per capita red meat consumption in the US fell by 7.2%, 1971-75, pork consumption decreased 25.0% over the period. This in part reflected substitution by consumers in response to a change in relative retail prices of meat; comparing prices in 1971 and 1975, the average retail price of beef was about 33% higher in 1975, while that for pork had risen 90%. With an improvement in the economic climate and slightly lower retail prices, preliminary USDA estimates for 1976 indicate a 6% growth in per capita red meat consumption 1975-76, including a six percent increase in pork intake. ANNEX 2 Page 20 US Per Capita Red Meat Consumption Kg/Yr /1 All Meat Beef Veal Lamb and Mutton Pork 1971 71.0 37.9 1.0 1.3 30.8 1972 69.5 39.0 0.8 1.3 28.4 1973 64.5 36.8 0.7 1.1 26.0 1974 69.0 39.2 0.9 0.9 28.1 1975 65.9 40.3 1.6 0.8 23.1 1976 /2 70.0 43.3 1.4 0.8 24.5 /I Fresh meat basis. /2 Preliminary. Sources: USDA, Livestock and Meat Statistics: Supplement for 1975, Bulletin No. 522, Washington, June 1976, p. 119; USDA, Livestock and Meat Situation, LMS-212, December 1976. While per capita consumption of pork has declined until 1976, the composition of this dietary component might be undergoing change in preference for leaner cuts and products. American consumers seem to view imported hams and shoulders as leaner and generally of superior quality compared to American substitutes. Although the latter remains a moot point, the mission did observe the leanness of Romanian canned hams and shoulders during visits to processing facilities. 4.14 There are presently no quotas placed on pork imported into the US; however, a system of import tariffs is in effect. Since Romania was granted Most Favored Nation status on August 2, 1975, it is eligible to pay "Column 1" rather than "Column 2" rates which are generally higher. With regard to canned hams and shoulders, however, there is at present minimal difference between the two tariff rates (products entering less than or equal to three lbs in weight, no difference: 3d/lb; products entering over three lbs: Col 1, 3d/lb and Col 2, 3.254/lb). Higher rates are placed on pork sausages imported into the US from Column 2 countries. However, since all major pork exporters to the US have been issued similar status, this distinction gives Romania no comparative advantage. When meat imports become overly abundant and threaten the stability of the domestic market, US producers, through their various farm organizations, lobby for increased controls. These generally take two forms: first, negotiation of voluntary restraint agreements to hold imports to his- torically average levels and as a last resort, quotas issued by presidential order. Foreign processing plants and entering products, lastly, must meet stringent USDA sanitary and purity standards. 4.15 Propsects for further Romanian entry into the US pork import market can be summarized as a function of the following variables: (a) price com- petitiveness with other major competitors, notably Poland, Denmark, and the Netherlands; (b) continued American consumer preference for imported canned hams and shoulders; (c) the general economic climate in the US; and (d) US producer tolerance for competition from imported commodities. ANNEX 2 Page 21 Prospects in Other Markets 4.16 Although no precise information was supplied to the mission, indica- tions are that Romania has begun to ship fresh and frozen pork to Poland as well as to the USSR. Pork production in Poland declined in 1976, principally due to private producer response to low farm prices established by the State. Unlike in Romania, an estimated 80% of total pork output in Poland is produced on small private farms which in turn sell animals to State enterprises for processing. Faced with relatively low supply prices, Polish producers have reacted by substituting more profitable production activities and by curtailing area planted with feed potatoes, the major feedstuff for pigs in Poland. Pork production was expected to drop in January 1977 10% below levels observed one year previously. Exports to the US were also expected to decline by about 2% during 1976. Polish consumers have likewise faced rising retail prices as a result of domestic shortages. To confront these shortfalls in production, Poland has reportedly raised domestic farm prices for pigs and concurrently imported pork for domestic consumption to protect export quantities. Medium- to long-term prospects for continued Romanian pork exports to Poland are un- certain. 4.17 In the USSR the national pig herd was reduced significantly during the second half of 1975 when the results of the poor 1975 grain harvest became apparent. Pig numbers on State and collective farms were down 17% as of June 1976 from those observed in June 1975. Faced with sizable 1975 slaughters and an improved domestic grain situation in 1976, the Soviets are attempting to rebuild the national breeding herd. As a resulti pig numbers increased 9% over the January-June 1976 period and by October were down only 1% from the previous year. The future prospects of Romanian pork exports to the USSR will be deter- mined in large part by the ability of the feedgrain sector to support the national herd, the chances of Government sanction for external pork purchases, and potential competition from other potential Eastern European suppliers. 4.18 In Japan, following a 5% decline in pork production, 1974-75, a 2% recovery was forecasted for 1976. In response to strong consumer preference for pork as well as improved economic conditions, pork imports in 1976 were expected to reach 165,000 tons. Romanian prospects in the Japanese market seem a function of (a) potential competition from EC and US suppliers; (b) established bilateral trade agreements with Western countries for exchange of Japanese manufactures for agricultural goods, and (c) possible balance of pay- ments constraints in future years because of growing imports of foreign oil. APPRAISAL OF ANNEX 2 PIG PRODUCION AND 1oCESSING PROJECT Table 1 ROMANIA Incremntal Pork Produced Under Project and Total 1976-80 Plan Commitments, and Projected Pork Consumption A Unit 1975 1976 1977 1978 1979 1980 1981 1982 1983 Number of fattened pigs and cdued ureedg animals 1,000 head . - - 15.3 524.3 1,557.0 1,874.9 1,874.9 1,874.9 Fork generated from Project- live-weight basis / tons - - 1,684 70,783 173,229 208,104 208.104 205,104 Number of fattened pigs and culled breeding animals from 1976 cotmmaents 1,000 head . 6.1. 548.0 824.4 824.4 824.4 824.4 824.4 Pork generated from 1976 commitments- live-weight basis ta tons 668 61,940 92,342 92,342 92,342 92,342 92,342 Number of fattened pigs and culled breeding animals from 1.979 and 1.950 ,ommitments 1,000 head 472.7 998.6 1,144.9 Pork generated from 1979 and 1.990 commeitments- live-weight bais / tons 53,368 112,000 128,089 Total number of fattened pigs and culled breeding animals produced under 1976-1990 Plan commitments 1.000 aad 6.1 563.3 1,448.7 2,381.4 3,172.0 3,697.9 3,844.2 Total pork generated under 1976-1980 Plan cmmitnents liveaeight tons 668 63,624 163,125 265,571 353,814 412,446 428,535 Population /2 1,000 21,243 21,240 21,670 21,880 22,100 22,320 22,550 22,770 23,000 Planned per capita consumption /4 fresh meat basis Zf5 kg 23.00 24.09 25.22 26.41 27.65 29.00 29.00 29.00 29.00 Total planned consumption live-weight basis tons 814,200 861,218 910,862 963,085 1,018,442 1,078,800 1,089,917 1,100,550 1,111,667 Incremental planned consumption over 1975 level - live- weight basis tons 47,018 96,662 148,885 204,242 264,600 275,717 286,350 297,467 Excess incremental pork pro- duction over planned consumption - liverweight basis 971 78,097 126,096 131,068 16 /1 Assumptions: :ulled Sows: 175 kg; culled boars: 200 kg; and fattened pigs: 110 kg (live-weight). 72 Popalation growth rate of 1.00 percent assumed over period; this rate of increase was observed over the 1960-75 period. 3 Compound rate of growth of 4.7 percent assumed to achieve planned 26 percent growth in per capita pork consumption over the 1975-80 period. /4 Source: Ministry of Internal Trade. Srresh meat basis assumed 60 percent of live-weight. 7 If allocated to home market, would enable increase In per capita consumption level to 32.4 kg per annum. February, 1977 ANNEX 3 Page 1 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA The Bank for Agriculture and Food Industry I. The Banking Structure in Romania 1.1 The role of banks within a centrally planned economy with socialist proprietorship of the means of production differs considerably from that in a market economy with private property. Net income from economic activity accrues to society. National income, production, and investment are distri- buted, channelled, and allocated according to decisions incorporated in the national plan, not in response to market forces, including profits, prices, or risks. The main role of banks in Romania consists of implementing the plan, evaluating plan proposals, and funding and supervising operations and investment projects. Banks in Romania are State-owned, and each financial intermediary fulfills a definite task (Chart 1): a. The National Bank (NB) sets guidelines for credit policy and grants short-term production credit to industry and commerce; b. The Investment Bank (IB) grants long-term investment credit to industry and commerce; c. The Romanian Bank for Foreign Trade (RBFT) deals with foreign exchange operations; d. The Insurance Administration (IA) deals in all types of insurances for State and cooperative entities as well as private individuals; e. The Savings Bank (SB) accepts savings and grants consumer credit and loans for the purchase of private homes; and f. The Bank for Agriculture and Food Industry (BAFI) finances production and investment in agriculture and agroindustries. RBFT, NB and BAFI hold ministerial rank, depend directly on the Council of Ministers, and operate with their own funds. IA, IB and SB are institutions within the Ministry of Finance and obtain their resources from the Ministry's budget. Among these financial institutions, there is neither competition nor overlapping of responsibility. ANNEX 3 Page 2 I. Tasks and Responsibilities of BAFI 2.1 In recent years Romania has emphasized the development of agricul- ture as expressed by Party Chairman and President Ceausescu: "Agriculture--a basic branch, decisive for ensuring a good supply of the population--will be at the core of the preoccupations of the Party and government". I/ In 1968, Decree 55 established BAFI as a separate State entity to finance and supervise production and investment in agriculture and agroindustries. The principal tasks of BAFI are to: (a) grant short-term production credit; (b) approve investment proposals of socialist organizations 2/; (c) grant long-term investment credit to socialist organizations, individual coop-members, and private farmers; (d) maintain checking accounts and accept deposits; (e) exercise financial control and supervision over execution of financial and investment plans; (f) act as fiscal agent for operations financed from the budget and collection of State revenues; and (g) cooperate with foreign institutions and international organizations having similar tasks. III. Organization and Management 3.1 The Administrative Council is the policy-making body of BAFI. It is composed of the BAFI President, Senior Vice President, Vice President, Directors of BAFI departments in the head office and some BAFI branches, economic and agricultural experts, representatives of several ministries and other central State organs, and a delegate designated by the General Trade Union of Romania. BAFI's senior officers belong to the Council ex-officio, whereas the remaining members of the Administrative Council are appointed by the Council of Ministers upon the recommendation of the BAFI President. The Council meets at least once every quarter. 3.2 Between the sessions of the Administrative Council, the Executive Bureau acts as the decision-making body. Its seven members are the President, the Senior Vice President, Vice President, three Department Directors and the representative of the trade unions. The Bureau meets weekly. 1/ Nicolae Causescu, Report to the 11th Congress of the Romanian Communist Party. 2/ State enterprises and cooperative complexes. ANNEX 3 Page 3 3.3 The BAFI President, who is the chief executive officer, is appointed by State decree. The Senior Vice President and the Vice President are ap- pointed by the Council of Ministers. The BAFI President implements the deci- sions of the Administrative Council and the Executive Bureau. 3.4 The respective functions of BAFI's six departments are (Table 2): (a) crediting and financing of LASs; (b) crediting and financing of the agricultural cooperative sector; (c) crediting and financing of food and agroindustries; (d) coordination, planning, and external relations; (e) accounting and auditing; and (f) economic matters, administration, legal affairs, and personnel. 3.5 BAFI has a branch office in each of the 39 districts of Romania. In addition to these, there are 92 sub-branch offices, 57 of which are direct BAFI branches. The remaining 35 are NB agencies which periorm operacions for BAFI. The branch offices and sub-branches are responsible for the agricul- tural sectoral activities in their respective areas; there is no geographical overlapping. The three operational departments of the head office (paras. 6(a), (b), (c)) service the entities within agriculture and agroindustries established on a national basis (centrals, trusts, research institutions). On the local level, about-800 Credit Cooperatives effect payments, disburse- ments, and collections under BAFI's mandate. The Credit Cooperatives are awarded a commission by BAFI of 0.4% of payments for this service. 3.6 BAFI employs about 210 persons at the head office in Bucharest and approximately 3,500 in its field offices. Within the total staff, there are about 112 engineers and technicians, 706 university graduates with degrees in economics and finance, 2,672 specialists with secondary school training mostly in banking and accounting, and 202 auxiliary personnel. In order to provide the in-service training of staff required by law, BAFI offers courses appro- priate for the various levels of responsibility. The courses include Romanian agriculture, project planning and evaluation, credit operations, recovery of loans, and marketing. BAFI staff appears to be dedicated and well-qualified. Judging from the quality of sub-project evaluation, reports, and supervision measures, BAFI staff seems capable, well-informed, and efficient. IV. Lending Policies and Procedures 4.1 In order to realize the targets set by the five-year and annual plans, the socialist organizations in agriculture and agroindustries submit financial plans and investment proposals for BAPI review. If BAFI requires additional data, borrowers have to provide any information to facilitate project appraisal. If BAFI objects to the Borrower's plan, the organization has to submit a revised version in order to obtain credit. Disbursements are made against presentation of documents. ANNEX 3 Page 4 4.2 BAFI-financing is primarily secured by "credit engagements" of borrowers who commit all present and future income to debt service and who are obligated to maintain all their revenue in BAK accounts. Furthermore, short-term credit must not exceed 60% of the value 1/ of production to be financed. Repayment risk is extremely low within the Romanian politico- economic framework. To date no bad debt has been recorded with BAFI. However, should a liquidity problem arise with a debtor, BAFI's claims have the second priority (after salaries) in the financial obligations of State enterprises and first in those of cooperatives (Legea Finantelor 9/1972; art. 137 and 138). 4.3 Each branch, sub-branch, and operational head office department is responsible for the supervision of its clients. BAFI exercises strict control over both annual production activities and the disbursements for and progress of investments. BAFI inspectors visit projects at least quarterly (but on average once every six weeks) and prepare supervision reports. Delays and infractions in current payments and project execution are penalized in accord- ance with BAFI's authority under the law (e.g., temporary or permanent reduc- tion in pay or requested replacement of an erring official). BAFI may recover loans if proceeds are not used in accordance with the loan agreement in BAFI's judgment. The financial situation of borrowers is examined monthly and re- ported to the head office. In addition to the normal supervision procedures, there is a central supervision division which ensures that this activity is carried out properly. V. Lending and Investment Operations 5.1 The following table shows the volume 2/ and relative importance of production and investment credits granted by and/or through BAFI: 1/ The value is calculated on the basis of the selling price. 2/ Data refer to the total sum of credits granted during a fiscal year which differs from the amount of credits outstanding at the end of a fiscal year as shown in the balance sheet. In the case of short- term loans, the volume granted over a one-year period is much higher than the amount outstanding at any point in time. ANNEX 3 Page 5 Production 1970 1971 1973 1975 Financing Lei M % Lei M % Lei M Z LeiM % a. Short-Term Loan 115,225 77 202,182 81 248,261 83 302,074 79 Investment Financing a. Short-Term Loans 7,074 5 7,682 3 11,484 4 16,137 4 b. State Equity Contributions 27,077 18 38,511 16 39,471 13 62,593 17 Subtotals 34,151 23 46,193 19 50,955 17 78,730 21 Total Financing 149,376 100 248,375. 100 299,216 100 380,804 100 Over the 1970-75 period, total financing more than doubled, with short-term lending (although already accounting for 77% of total BAFI financing in 1970) growing at the highest rate. After a period of relative stagnation, invest- ment financing (23% of total BAFI-lending in 1970) expanded rapidly in 1974 and 1975 so that it also increased as a percentage of BAFI-financing between 1973 and 1975. The evolution of the structure of the BAPI portfolio is shown in the following table (1970-100): Production Financing 1971 1973 1975 a. Short-Term Loans 175 215 269 Investment Financing a. Long-Term Loans 109 162 228 b. State Equity Contributions 142 146 231 Subtotals 135 149 230 Total Financing 166 200 250 Investment Financing 5.2 Investment projects are generated either at the production unit level or in the MA. Production goals quantified in the planning process as well as financial resources available are taken into consideration when incorporating projects into the annual investment plan. Once a project is included in the annual plan, the production complex staff prepares a technical and financial proposal with the help of the district General Directorate for ANNEX 3 Page 6 Agriculture and often with assistance from a State-run design institute. These studies are usually very comprehensive. Proposals are then submitted to a technico-economic commission which provides detailed assessment. If its conclusions are positive, the proposals are then sent to the proper authority for approval. The following tables show the various bodies that act on investment proposals: a. For investments in the cooperative sector Advice by Technico-Economic Investment Commission in: Approving Authority Less than Lei 10 M Production Unit Management Lei 10 to 30 M Central and Gen. General Assembly Directorate of MA of the CAP Lei 30 to 70 M MA Council of MA Over Lei 70 M MA Ministers' Council b. For investments in the State sector Less than Lei 5 M Enterprise Workers' Council of the Enterprise Lei 5 to 10 M Trust of the LAS Managing Council of at the District the Trust Level Lei 10 to 70 M Dept. of LAS in Council of the Dept. MA of IAS 5.3 Once a proposed investment is approved, it is submitted to BAFI for review. In addition to a financial and economic review, investment proposals are thoroughly scrutinized on technical grounds by the engineering group of the respective BAFI agency. From information obtained in the field, it appears that BAFI's "compulsory advice" on an investment proposal quite often calls for substantial reductions in investment costs. Financing of Investments in the Cooperative Sector 5.4 BAI finances up to 70% of the total cost of a given investment 1/. The maximum loan repayment periods are set by law. Examples of repayment terms are as follows: 1/ Exceptionally higher percentages must be approved by BAFI's President. ANNEX 3 Page 7 Maximum Maximum Type of Investment Grace Period Repayment Period On-farm irrigation 5 25 Vineyards and orchards 7 10 Dairy farming 3 20 Feed mills 2 12 Transport equipment 1 8 Pig complexes 3 18 Poultry complexes 3 15 Beef complexes 3 20 Greenhouses - 20 Borrowers are charged 3% p.a. interest (6% p.a. penalty rate). Financing of Investments in the State Sector 5.5 Investments in the State sector are normally financed by equity contributions from the State budget channelled through BAFI. Although theoretically non-reimbursable, these contributions flow back in the form of "depreciation payments" collected by BAFI. Contributions by State enter- prises out of their, own funds for investments have been minimal. Long-term lending to State enterprises started on a small scale under the "Small Mechanization Program" and on a regional basis under the IBRD-financed Sadova-Corabia Agricultural Credit Project. This policy adjustment reflects a relatively recent decision to require increased financial responsibility within the State agricultural sector. This trend would continue under the proposed project. Interest rates for long-term investment credit would be as follows: - during construction period 2% p.a. (penalty rate 6% p.a.) - after construction period 4% p.a. (penalty rate 6% p.a.) Financing of Investment Outside the Socialist Sector 5.6 The terms applicable to the cooperative sector are also applied for long-term loans to individual coop-members (who are charged a penalty interest rate of 10%) and to private farmers who may use long-term credit only for investments in plantations and breeding stock. Short-Term Financing of Production 5.7 The interest rates are fixed by Financial Law 9/1972 and vary according to the borrower: ANNEX 3 Page 8 Borrower Interest Rate (p.a.) State Units 4% Mechanization Stations 3% Cooperative Sector 2% Individual Coop-members 2% Private Farmers 2% State Retail Organizations for Fruit and Vegetables 3% Agroindustries 5% Enterprises for Construction in Agriculture and Agroindustries 2% Repayment terms depend on the due date of the revenue resulting from the operation financed; however, repayment should not exceed 12 months. Credits are granted upon presentation of marketing contracts and are limited to 60% of the contracted value in the case of the cooperative sector and to 45% for private farmers and individual coop-members. VI. BAFI - Lending for Pig Production and Processing (Table 1) 1/ 6.1 Available data suggest that short-term financing for industrial- type pig production and processing accounted for less than 10% of all out- standing BAFI short-term credits at the end of each year, 1969-75. Investment financing for pig production and processing amounted to about 5% of total State funds channelled through BAFI per year. 6.2 Aggregated data for financing investments in pig production and processing show no dramatic changes over the 1969-75 period. However, a con- siderable increase was expected after the initiation of the 1976-80 investment program totalling about 12 billion lei. The average annual slice of the cur- rent five-year plan investment program in this subsector would equal about 15% of the total 1975 investment volume in agriculture and agroindustries financed by the State and channelled through BAFI. 1/ Data obtained concern only the industrial type system, i.e State enter- prises for pig breeding and fattening and inter-cooperative pig complexes. Financing of pig production and processing by the traditional sector of socialist organizations, individual coop members, and private farmers is not covered by data since these units are engaged in mixed farming; information on their financial operations is aggregated and not broken down by activity. The following section therefore covers only the industrial type system, which accounted for about 39% of the pig production in 1975. ANNEX 3 Page 9 6.3 Short-term lending for industrial-type pig production and processing at the end of each year, 1971-75, totalled between 2.4 billion and 3.7 billion lei, or between six and ten percent of total outstanding BAFI short-term credit. Fluctuations of this kind are characteristic of current account balances. Since one borrower, MIT, receives approximately 50% of BAFI short-term lending to this subsector, sizable variations in total short-term BAFI lending have been caused mainly by shifts in the balances of MIT (1974: 2.3 billion lei; 1975: 1.1 billion lei). Short-term lending for pig production has remained fairly stable with a large and increasing percentage being channelled to cooperatives. In 1975 ICAs received 87% of BAFI's outstanding short-term loans for pig production, compared to only 67% in 1973. This was due to the fact that State enterprises finance their operations mostly out of equity contributions from the State budget and, in terms of total assets, operate with a very low percentage of bank liabilities. 1/ Cooperatives rely much more on BAFI lending since its sources of generating and increasing equity capital are more limited. 6.4 Investment financing for industrial-type pig production and process- ing takes the form of either long-term BAFI loans or State budget contributions channelled through BAFI. Overall investments in the sector increased in absolute terms over the 1973-75 period, but at a growth rate lower than that of total BAFI operations. Therefore, financing of investments in this sub- sector decreased as a percentage of total BAFI long-term financing. This was due to a decline in investments for pig production facilities reflecting the phasing fixed in the 1971-75 Plan. Increased short-term lending with decreased long-term financing of ICA pig complexes suggests that after the bulk of investments were completed, complexes initiated production and required infusion of short-term capital. Past patterns of investment allo- cation within this subsector indicated that greater emphasis was given to processing plants toward the end of development plan periods. Processing investments represented 31% of the sector total in 1973 but 87% in 1975. 6.5 To date, long-term investment lending by BAFI for pig production and processing has been confined to cooperatives; no such investment loans to date have been made to State enterprises or to private farmers or individual coop-members. BAFI lending to borrowers other than cooperatives has been limited to short-term financing. VII. Source of Funds (Tables 2 and 3) 7.1 The various sources of BAFI funds are its statutory capital, reserve fund, funds from the State budget, short-term borrowings from NB, and deposits from socialist organizations. 1/ Balance sheets of State complexes seen in the field showed liabilities being less than 5% of total assets on average. ANNEX 3 Page 10 7.2 The increase in the statutory capital of BAFI from 300 million to 800 million lei in 1971 was financed by contributions from the State budget. In addition, BAFI disposes of a reserve fund of 800 million lei equal to the statutory capital. Under BAFI's charter, reserve fund accumulations cease when the reserve fund is equal to the statutory capital; therefore, all net income of BAFI now accrues to the State budget. BAFI's net worth has been equal to about three percent of total assets, a ratio similar to those of Western commercial banks. 7.3 Investments in State enterprises are mainly financed from a special fund allocated from the State budget and administered by BAFI. BAFI's long- term loans are financed by the "Fund for Long-Term Credit" which has been equal to about 30% of BAFI's total assets. 7.4 Short-term borrowings from NB are the most important source of finance and have corresponded to about half of BAFI's assets. NB funds are on-lent by BAFI as short-term loans. BAFI pays 1.5% per annum on these borrowings. BAFI requires that its borrowers maintain revenues in BAFI deposit accounts. BAFI pays 1.5% per annum on such deposits. Total deposits have remained fairly stable since 1969, between 4.0 and 5.1 million lei. Due to the growth of total BAFI lending, deposits as a percentage of total assets declined from 15% in 1969 to less than 5% in 1975. This mainly reflects the limited capacity of the cooperative sector (whose deposits were about 14% of total BAFI assets in 1969) to increase and retain substantial funds. Financial Condition (Tables 2, 3 and 4) 7.5 Total assets in 1975 were about 150% higher than those in 1970, and 267% higher than those in 1969. Income expanded at an even higher rate: Total Income Total Expenses Net Income % of % of % of Lei M 1970 Lei M 1970 Lei M 1970 1970 720.8 100 460.3 100 260.5 100 1973 1789.1 248 648.0 141 1141.1 438 1974 1909.6 265 676.4 147 1233.2 473 1975 1941.7 269 698.1 152 1243.6 477 Costs grew more slowly than total income, resulting in a 400% increase in net income over the 1970-75 period. Because net income grew much faster than total assets, net income also rose as a percentage of total assets from 0.5% in 1969 to 2.1% in 1975. General and administrative expenses (GAE) are relatively low and under tight control. These costs equalled 16.7% of total income in 1970 and 7.8% in 1975 (Table 4). As a percentage of total financing, GAE also declined from 0.08 (1970) to 0.04 (1975). Net income as return on capital is shown in the following table: ANNEX 3 Page 11 Year Net income as percent of net worth 1969 30.6 1971 48.9 1973 14.1 1974 77.0 1975 77.7 Net income grew to an impressive level despite considerable capital increases in 1971 and 1973 which pushed BAFI's net worth on December 31, 1975 to 1,600 million lei, more than four times that recorded on December 31, 1969. 7.6 Because of BAFI's control over the accounts of borrowers, its strict surveillance of disbursements, use of loan proceeds, as well as its rigid inspection of operations at the project level, there has been no reported loss due to bad debts. BAFI is protected against foreign exc!=nZ- lascar. Foreign exchange operations are beyond BAFI's terms of reference as defined by Decree 55/1970. Responsibility for such dealings lies with RBFT as well as NB. Under the Romanian system, any effect on the servicing of the IBRD loan (or any other foreign indebtedness) resulting from a change in the exchange rate of the leu vis-a-vis other foreign currencies would be addressed in the State's financial plan., Since BAFI is well protected against risks resulting from its portfolid or lending operations and since BAFI management maintains strict control over operational costs, BAFI is expected to continue to remain in good financial condition. APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Financing of Pig Production and Processing through BAFI and State Budget 1973 1974 1975 Type of Financing Borrower/Investor M Lei %- H Lei M Lei % Short-Term Credits Meat Central at End of Fiscal 1,560 4.2 2,346 6.3 1,178 2.9 Year (FY)11 by BAFI State owned pig complexes 466 1.2 317 0.8 162 0.4 Intercoop pfg complexes 975 2.7 1,005 2.7 1,065 2.6 Total LA 3,001 8.1 3,668 9.8 2,405 5.9 Long-Term Investment Pig complexes of cooperative Loans Granted by sector 179 1.51 98 0.513 82 0.4/3 BAFI During FY Total vestments during %L& % %L4- FY - (including own State owned pig complexes 340 2.7 89 0.5 28 0.1 funds and State con- tributions) Pig complexes of cooperative sector 231 1.8 133 0.8 96 0.5 Pig processing plants of Meat Central 254 2.0 646 3.8 810 4.2 Total Investments /1 825 6.5 868 5.1 934 4.8 /1 Does not include the traditional sector. /2 Of total BAFI short-term lending. /3 Of total BAFI long-term lending. /4 As percent of State budget contributions channelled through BAFI. /5 Purchases of pigs and modernizations not included. ANE 3 Table 2 AIPPAISAL OF PIC P~oDUTION AND PMOCESSING PROJECT comparativi !aaM Sheets of Bank for Agriculture and Food CIdustry 1969 1971 1973 1974 1975 tal r ai m Chaue ta 4 change TAi 14 Change t4i m Change A S S -9 T S .........--..-..-...... - 9.. .1) 31 23. 58 27 56 (2)> short-Term ..-...-----............... 16579 3078 1080. 36727 4075 36845 118 40297 3452 2. Medium- and Iong-TTrm...... m........... 5649 985 2300 11585 1469 16621 5036 18719 2098 Other Acsetå __5 9 ...L 201. - 14 ..3 1.0 ( Total Aeta .-.-.. .... ..... ............ . 56 6104 60179 51 LIABILITIES AND NfT WORT9 Overdraft with the Nationel Bak................. 11112 22893 9138 28165 3064 23280 (4885) 28441 5161 Deosit of: 1. State Eonomdc Units - (a) operationc....................... 1023 1047 104 1154 181 2399 1245 2180 (219) (b) rnvetm~t.................... 162 162 48 249 14 m14 (105) 246 102 2. Cooprattvcs (a) Operations....................... 3085 2616 ( 435) 2653 152 2271 (382) 2378 107 (b) Inetents...................... 105 141 ( 57) 227 90 300 73 319 19 3. Other etitie 43 128 92 570 468 6 (564) 6 - Dmg to the Stat. Budet for: IL colleation for Acunt of State Budget .... 60 134 13 292 70 - (292) 22 22 2. BAFI "Deprcition* aed Other Pynt.... - 1 - - ( 1) - - - - 3. AFI Net Senmfits Due to State Budgt..... 119 581 354 227 ( 34) 1233 1006 1244 11 Libilities and numia: 1. ~ dfor Iong-Ter Credit.................. 5880 9366 2309 11916 1654 17270 5354 19296 2026 2. Other'Pn*............................. 6 2 - 2 - 2597 2595 2063 (534) Other Liabilltie., .............................. 18 20 2 26 4 400 374 389 (u1) ,%~pene Accounts: 1. BeMonciliation Accounte - BAFI Brama .. - 674 674 333 7 1573 1270 727 (846) 2. Other Tranaitory Accomte ............. _3.o. 10 .,,,32 1160 12§) o 415 , 8 _(i Total Liabilties......................... Ralj 3~ 12674 6 n048 6104 82 .2 fet Worth: 1. Statutory cetal......................... 300 800 300 00 . 800 - 800 2. SuV,uc Re.............................. 88 iw _1. 800 800 - 800 Total Net worth.......................... _388. _iié _9 1600 - 16g - 1600 Tot~ ~ibUtitt gnd %e t ~ yt................... åå01 läa ta4 JLU~ !2 61014 60179 FUMDD STATE INVEsT~E S WIT BAFI AS FISCAL AGEN.... 7711 i130 . . 1210lo 440 16601 1286 24 M *resse or daerema ( ) ram previous year. APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Comparison of Balance Sheet Structures Bank for Agriculture and Food Industry 1969 1971 1973 1974 1975 of Total % of Total of Total It of Total of Total ASSETS alets assets assets assets assets cash........................................... ......... ... - - 0.1 0.1 Loana 1. Short-Term........................................... 74.3 76.8 75.7 67.4 67.0 2. Medium-and Long-Term.................................. 25.3 22.8 23.9 30.4 31.1 Other Assets 0.4 0.4 0.4 2.1 1.8 Total Assets.............................................. 100.0 100.0 100.0 100.0 100.0 LIABILITIES AND NET WORTH Overdraft with the National Bank.............................. 49.8 57.3 58.0 42.6 47.3 Deposit of: 1. State Economic Units (a) Operations.................................... 4.5 2.6 2.4 4.4 3.6 (b) Investments................................... 0.8 0.4 0.5 0.3 0.4 2. Cooperatives (a) Operations.................................... 13.8 6.7 5.5 4.2 4.0 (b) Investments................................... 0.5 0.4 0.5 0.5 0.5 3. Other Entities 0.2 0.3 1.2 - - Due to the State Budget for: 1. Collection for Account of State Budget................. 0.3 1 0.3 0.6 - - 2. BAFI "Depreciation" and Other Payments................. - * - - - 3. BAFT Net Benefits Due to State Budget.................. 0.5 1.4 0.5 2.3 2.1 Liabilities and Funds: 1. Fund for Long-Term Credit................................ 26.4 23.5 24.5 31.6 32.1 2. Other Funds.........................................******.***...- - 4.8 3.4 Other Liabilities.............................................. 0.1 - - 0.7 0.6 Suspense Accounts: 1. Reconciliation Accounts - BAFI Branches*................ - 1.6 0.7 2.9 1.2 2. Other Transitory Accounts.............................. 1.3 2.5 2.4 2.9 2.1 Total Liabilities...................................... 98.2 97.0 96.8 97.2 97.3 Net Worth: 1. Statutory Capital..................................... 1.3 1.9 1.6 1.4 1.35 2. Surplus Reserve.......................................... ...0.4 1.0 1.6 1.4 1.35 Total Net Worth.........................................***** * 1.7 3.0 3.2 2.8 2.7 Total Liabilities and Net Worth............................... 100.0 100.0 100.0 100.0 100.0 F N ffi n TATP TNVP ETMF MTqP T4 H JL&E A , T qA T A & . ... . . . ..34.6 30.3 25.T30.4 31.7 -3-.- 31 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Comparative Statements of Income and Expenses of the Bank for Agriculture and 'Food Industry 1970 1971 1973 1975 % of Total Z of Total Z of Total % of Total IN C OME M Lei Income M Lei Income M Lei Income M Lei Income 1. Interest from Short-Term Loans 568.6 78.9 1016.3 82.7 1358.4 75.9 1539.6 79.3 2. Interest from Medium- and Long-Term Loans a. Sadova-Corabia - - - - - - 0.1 0.0 b. Others 99.8 13.8 139.0 11.3 224.2 12.5 315.8 16.3 3. Commissions Received 42.4 5.9 58.5 4.8 58.2 3.3 81.7 4.2 4. Miscellaneous Income 10.0 1.4 14.5 1.2 148.3 8.3 4.5 0.2 Total Income 720.8 100.0 1228.3 100.0 1789.1 100.0 1941.7 100.0 EX PENSES 1. Interest on Overdraft with National /1 Bank 246.1 34.1 342.3 27.9 423. 0L-- 23.6 418.7 21.6 2. Financial Expenses on IBRD-Loan - - - - - - 7.4 0.4 3. Interest on Deposits 68.9 9.6 41.9 3.4 69.9/1 3.9 106.9 5.5 4. Commissions Paid 22.0 3.1 18.0 1.4 12.1 0.7 13.6 0.7 5. Miscellaneous Banking Expenses 2.7 0.4 2.3 0.2 1.9 0.1 0.8 0.0 6. General and Administrative 120.6 16.7 127.8 10.4 141.1 7.9 150.7 7.8 Expenses 460.3 63.9 532.3 43.3 648.0 36.2 698.1 36.0 N.E T B E N E F I T S 260.5 36.1 696.0 56.7 '1141.1 63.8 1243.6 64.0 /1 Total of Lei 492.9 million allocated to the items on the basis of average balances during FY73. APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Financial Institutions Council of Ministers Bank for Ministry Romanian Bank Agriculture and National Bank of Finance for Foreign Trade Food Industry Inves,ment State Insurance Savings Bank Bank Administration APPRAISAL OF PIG PRODUCTION AND PROCESSIG PROJECT ROMANIA O Raaton Chart Bank for Agriculture and Food Industry Adminiatr"tive Council President SeniDr Vice-President Vice President Credit and Finane Credit and Fn of Coordination, Planning Credit and Pinanee Economic Matters, of State Agricultural Accounting and the Agricultural of Food and Administration, Legal Enterprises Auditing Cooperative Sector External Relations Agro-Indixatries Affairs, Personnel ANNEX 4 Page 1 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Pig Production The National Herd 1. The 1975 national pig herd was estimated at about 8.8 million head including about 820,000 sows. Herd size increased rapidly from about 2.2 million in 1950 to about 5.4 million in 1965, and to about 8.6 million in 1974. Over this period, emphasis was placed on increasing production in the socialist sector. In 1950, 1.8 million pigs (about 80% of the total) were recorded in the private sector compared with about 0.6 million (about 7%) in 1975. In 1975 about 3.6 million pigs (about 40%) of the total were recorded in large scale commercial production units either on mixed State enterprises or on specialized State enterprises for pig production. About 3.0 million pigs (34%) were recorded in large scale units on cooperative farms or inter- cooperative pig complexes (specialized pig production units owned by two or more cooperatives). Another two million pigs (23%) were produced by members of cooperatives in small individually operated plots, and the remaining 0.6 million (7%) on privately run farms. Breeds and Breeding 2. All the major breeds are present in Romania including Largewhite, Landrace, Duroc, Yorkshire, Hampshire, and Cornwall. The important breeds are Landrace, Largewhite and Duroc, and these breeds, either pure or crossbred, account for a large proportion of pigs produced. Landrace x Largewhite sows are used whenever possible, and by 1985 it is proposed that they constitute a large segment of the breeding herd. The latter is being achieved through the establishment of specialized farms to produce Fl Landrace x Largewhite gilts for use in both the State and cooperative sectors. Purebred Duroc boars are favored for mating with crossbred sows, and by 1985 it is expected that a large proportion of pigs produced will be progeny of F1 hybrid sows and Duroc boars. The number of pigs born per farrowing is about 10-15% higher for Fl sows (Landrace x Largewhite) than for purebreds; therefore this strategy is soundly based. The number of finished pigs produced per sow per year is an important economic trait and an extra pig/sow/year would increase the finan- cial rate of return by about 2.4% (Model: Pig Breeding/Fattening--32,000 pigs/year--State Enterprise). 3. A national breeding program for improvement of purebred pigs is in progress and will be further developed during the 1976-80 Plan period. This program, based on performance and progeny testing, identifies and selects superior boars and sows. Use of superior genetic material at the top of the ANNEX 4 Page 2 breeding pyramid ensures genetic improvement throughout the population. The main breeds--Landrace, Largewhite, and Duroc--are included in the program. Feed conversion efficiency is a highly inherited characteristic; an improve- ment of 10% would increase the financial rate of return by 6% (Model-Pig Breeding/Fattening--32,000 pigs/year--State Enterprise). With an efficient breeding program, a feed conversion efficiency improvement of at least ten percent could be achieved within ten years. Diseases 4. All the common diseases that affect pigs are present in Romania. The last outbreak of Swine Fever was recorded over three years ago. All pigs are compulsorily vaccinated twice yearly against Swine Fever and Erysipelas. Swine Fever vaccine costs 3.30 lei/dose and Erysipelas vaccine 0.045 lei/dose; vaccination service for these diseases is free to all producers other than State farms. E. Coli infections in young pigs is a problem similar to that found in large piggeries everywhere. Prevention is emphasized through vac- cination on large pig farms with vaccines prepared by the Pasteur institute (para 29) from bacteria isolated on the affected farm. Leptospirosis is not a serious problem and if an outbreak occurs, the farm vaccinates for two years with generally good results. Aulesky's disease (a viral disease like rabies) causes abortion in sows and nervous disturbance and death in young pigs. Vaccination with a live vaccine is practiced on farms where an outbreak has occurred usually.with good results. Vaccination against Salmonellosis-is carried out on farms where it is a problem. Antibiotics are used to control viral pneumonia. In summary, although all the common diseases that affect pigs are present in Romania, these are satisfactorily prevented or controlled by vaccination, hygiene, and appropriate veterinary medication. 5. Pig vaccines used in Romania are produced by the Pasteur Institute, a large veterinary research institute located in Bucharest. All the common antibiotics used for pigs are produced in a plant located at lasi. Competent veterinary services are available to pig producers through the district veterinary service; and in addition, large pig complexes employ full-time veterinary staff. All drugs, vaccines, antibiotics and medicines for pigs are supplied through the MA Central for Veterinary Materials. This system has proven satisfactory. Feeds and Feeding 6. Pigs are fed domestically produced maize, sorghum, and barley. About 50% of the soybean meal (the predominent protein food), and 100% of the fishmeal included in pig rations are presently imported. Meat, bone, and blood meals included in rations are produced domestically. Other ingredients for feed concentrates include wheat offals, sunflower meal, fats, sugar, minerals and vitamins. Energy feeds (maize, sorghum, barley) account for about 80% of the total pig feed, and high protein feeds (soybean meal, fishmeal and meat meal) account for the remainder. Romania is therefore well supplied with high quality feeds needed for formulating good pig rations. Pig farms usually buy mixed feeds from large feedmills at controlled prices. Feedmills procure ANNEX 4 Page 3 energy feeds (maize, barley, sorghum, etc.) from the Cereal Marketing enter- prises and buy sunflower meal and soybean meal from sunflower and soybean processing plants. Fishmeal and imported soybean meal are procured through Romagrimex, a State enterprise in charge of importing agricultural inputs. Rations are formulated by computer on a monthly basis at the Nutrition Institute based on a national inventory of available feeds. The Nutrition Institute provides feedmills with directives for vitamin-mineral premixes appropriate for different ration formulations. About one percent vitamin- mineral premix is incorporated in the six standard rations formulated for pigs and designated 01 to 06. 7. The overall strategy for providing livestock feeds is centered on locating large feedmills throughout the country to supply formulated feeds to livestock producers within a radius of about 50 km. Government plans to construct four or five plants throughout the country to provide sufficient vitamin-mineral-protein premixes to the feedmills in the future. One such plant is being financed under the Sadova-Corabia Agricultural Credit Project with a capacity for about 100,000 tons of premix per year. 8. An alternative strategy for supplying feeds to large pig complexes would be worth considering in the interest of the economy. If pig units were to buy ingredients and grind and mix their own feeds, considerable cost savings could be achieved, and in addition, the pig unit manager would have greater control over feed quality. The advantages associated with on-farm mixing include: (a) economies resulting from the elimination of double handling since grains would be moved directly to the pig farms with- out going to a feedmill; and (b) economies in the cost of producing feed which presently runs about 200 lei/ton at the feedmill (10% to 12% of the average cost of pig feed/ton). Disadvantages include the costs of storage, grinding and mixing on the farm. Furthermore, unless this approach were given official approval and encourage- ment, the supply of ingredients to the pig farms might not be assured. How- ever, since vitamin-mineral-protein premixes could in time be purchased from the specialized plants, supply of these ingredients at the local level should not constitute a problem. 9. Some pig complex managers favor home-compounding in order to provide cheaper and better feeds. At present, some piggeries formulate rations, par- ticularly in ICAs where the energy feeds are grown by and provided to the piggeries by participating CAPs. Although the present system at first seems rigid, it appears that the directors and managers of large pig complexes enjoy considerable freedom of action, enabling the industry to evolve sensibly within the context of fairly rigid overall planning. This flexibility should be encouraged. ANNEX 4 Page 4 10. Problems arise from time to time in the quantity and quality of feeds available. For example, protein feeds are sometimes in short supply, and when this happens, the protein content of rations is reduced across the board resulting in reduced animal performance. Furthermore, in periods of protein scarcity, priority is sometimes given to the production of poultry rations (particularly for layers). It is difficult to assess the impact of these constraints on pig production except to point out that they do exist but probably are not too serious. The protein quality of soybean meal of US origin is considered better than that of the domestic product because considerable denaturing of protein is caused by extraction techniques used in Romanian plants. However, this problem is fully appreciated and progress is being made to upgrade the quality of Romanian soybean meal. Feed quality problems are also associated with bad harvest conditions when high moisture in maize causes damage associated with fungal growth and with high drying temperatures. This difficulty was especially serious in 1975 and 1976 when wet weather at harvest- ing resulted in moisture content as high as 24% in maize. To cope with these moisture levels, dryers were operating at maximum temperatures and capacities. In addition, maize was dried in alfalfa driers which operate at higher tem- peratures causing serious denaturing of proteins. Again, the latter problem is fully appreciated. In summary, although Romania has problems relating to the supply and quality of feeds, particularly protein feeds, these difficul- ties are similar to those experienced in other countries and do not represent a serious consraint on Romanian pig production. However, improvement is possible and should be promoted. 11. On-farm feeding systems vary from the extremely simple to the sophisticated. On-floor feeding is commonly practiced; although this system is satisfactory when sufficient care is exercised, it can result in high levels of feed wastage should care not be taken. Mechanized conveyor systems for dry feeds are commonly used in Romania. They work well and are strongly favored at present. These systems are efficient, enabling an operator to feed a large number of pigs; when properly adjusted, feed wastage is reduced to a minimum. However, these systems are fairly capital-intensive; and given the large numbers employed on Romanian pig complexes, even when conveyor systems are in operation, it is sometimes difficult to justify their use on the basis of improved labor productivity. Liquid pipe line feeding involving the pump- ing of a mixture of meal and water from a central mixing station throughout the piggery is sometimes employed in Romania; however, this system now tends to be viewed less favorably. Feed conversion efficiency is generally better with wet feeding than with dry feeding, and therefore efficient pipe line feeding should be encouraged. Feed Conversion Efficiency 12. Present levels of feed conversion efficiency in growing pigs (1-110 kg) allow for considerable improvement. For example, in planning production, a total of 396 kg of feed per finished pig at 110 kg live-weight is allocated. With good pig rations based on high energy feeds (maize, sorghum, and barley) and high protein feeds such as soybean meal and/or fishmeal, a target of 330 kg feed per 110 kg finished pig would be realistic, assuming good management. ANNEX 4 Page 5 In fact, conversion efficiencies of this order are commonplace at present in well managed piggeries in Western Europe, although the average is much worse. This improved level of conversion would represent a saving of about 20% in the quantity and cost of feed required to produce a finished pig. Feed conversion efficiency is influenced primarily by feed quality and the genetic potential of the pig; however, in Romania it is difficult to partition the relatively low conversion performance between these two factors. It is probable that feed quality is the main factor associated with inadequate amounts of soybean meal and fishmeal incorporated into rations (para 10). Since feed costs account for about 72% of the annual operating costs in pig production (Model: Pig Breeding/Fattening--32,000 pigs/year), an improvement in feed conversion efficiency is directly related to improved profitability. Apart from the factors mentioned, conversion efficiency is often influenced by feed wastage due to inefficient feeding systems, overfeeding, and carelessness. This can only be minimized by efficient management based on careful recording and moni- toring to establish a data base for management decisions. Sow Fertility 13. The number of marketed pigs produced per breeding sow per year is an important coefficient in determining overall profitability of a pig production operation. This coefficient is relatively low in Romania, probably averaging about 10 or 11 per sow. On the ten large piggeries visited during appraisal, the number ranged between about 11 and 16 pigs per sow per year. Apart from the genetic factor discussed (para 2), the main casual factors include manage- ment, nutrition, disease, and environment. It is extremely difficult to quantify the relative contribution of these factors to the overall problem. High summer temperatures are considered an important cause in Romania because fertility is relatively low during the hot summer months. However, this does not explain the broad range encountered across farms since production systems, nutrition, and housing environments are much more standardized in Romania than elsewhere. The one important factor that is not standard is the level of management which probably accounts for the broad range encountered. It is difficult to detect oestrus in sows especially when dealing with large numbers. Careful observation by skilled operators is required several times daily including careful identification, recording, and monitoring for repeats. These duties are particularly difficult when large batches are being mated as in Romania and when the batch, and not the individual sow, is the unit (see para 18). On soi co-p'1-r'2' -iFited, recording and monitoring procedures were inadequate. 14. The most important consequence of low fertility is sub-optimal use of production capacity giving rise to serious inefficiencies and increased overhead costs per pig produced. For example, if a complex were planned on the basis of a breeding sow herd producing 15 pigs per sow per year and only ten were realized, the piggery would be operating at only 67% of capacity. This can be largely counteracted in practice by increasing the number of sows to ensure that the planned number of pigs are produced. Under Romanian con- ditions the principal incremental costs associated with the larger sow herd would be for feed and medicine (because accommodation allowances for dry sows ANNEX 4 Page 6 are usually adequate for the increased numbers required); these additional costs are small relative to the benefits realized by operating closer to full capacity. During appraisal a number of pig production complexes were observed operating below capacity; therefore, the strategy of increasing the number of sows should improve profitability considerably. This strategy has been adopted in constructing the project model (Model: Pig Breeding/Fattening--32,000 pigs/year) in which 2,500 sows are used to produce the numbers projected (vs. 2,130 sows in the model presented to the mission). The number of marketed pigs produced per sow per year in Romania was observed to average about 12.5. This latter figure was employed in the modeling exercise. Labor Productivity 15. The number of pigs produced per year per person employed ranges from about 200 to 450 on the farms visited. This is about 1/3 the number produced per worker on some well run farms in Western Europe. Managerial and technical personnel account for about 11% of total sL.fZ ou pig evmplexes in Romania; and auxiliary workers, including those that work on the manure disposal systems and in the waste water treatment plants, account for another 38%. Only about 50% of the total employed work directly with pigs (see Model: Pig/Breeding and Fattening--32,000 pigs/year, Table F--Staffing and Wages). There is considerable scope for improvement in labor productivity in Romania through reductions in the number of managerial and auxiliary workers. The present practice of expressing output in terms of pigs produced per worker directly employed in pig operations tends to be misleading; it is recommended that output per employee would be a better criterion of efficiency. The latter index is generally employed when measuring improved productivity resulting from the introduction of new technologies such as mechanized feeding systems. Manure and Waste Disposal 16. On modern pig production complexes in Romania, combined solid and liquid manure is channelled to a central pumping station to be pumped to a disposal system usually located about 1/2 to 1 km from the pig complex. The disposal process first involves sedimentation and a separation of liquid and semi-solid materials. The semi-solid materials, having about 10% dry matter (DM), are pumped to large concrete pits about 1-1/2 meters deep for evapora- tion and drying out. After about 20-30 days of drying, the material has a DM content of about 30%. This substance, now in solid form, can be easily handled with farm equipment (i.e. loaders, trailers, muck-spreaders, and manual forks) and transported to farms for use as fertilizer. The average chemical composition of this material is about 30% DM, 0.9% N, 0.5% P, and about 0.1% K. A pig produces about 800 grams of solid manure each day which is equivalent to about 690 kg per pig space/year. On this basis, the Model: Pig Breeding/ Fattening--32,000 pigs/year produces about 7,400 tons of pig manure per year containing about 2,220 tons DM, 77 tons N, 39 tons P and 7 tons K, equivalent to about 378,000 lei if the N P K content were valued at international fer- tilizer prices. The value of manure produced from the Model: Crossbred Gilt Production--960 gilts/year, is about 21,000 lei per year. ANNEX 4 Page 7 17. The waste liquids are pumped to a treatment plant where they undergo oxidation treatment before being discharged into waterways. Before entering the treatment plant, Biological Oxygen Demand (BOD) is about 3000 ml per liter; during treatment, BOD is reduced to about 100 ml per liter. The Model: Pig Breeding/Fattening--32,000 pigs/year, produces about 640,000 liters of waste water per day, and the Model: Crossbred Gilt Production - 960 Gilts/year, produces about 37,000 liters per day. Husbandry System 18. Production is based on a batch system. Sows are formed into groups of 50 to facilitate mating of a group every three days. Out of the total, one batch of 32 sows is projected to farrow every three-day period. Subse- quent to mating, the group is handled as a batch. During gestation, sows are individually penned if facilities permit. A group of 32 sows are moved to a farrowing house where one discreet compartment can handle this number. About 2.1 m2 is allocated per sow in the farrowing house. Piglets are weaned at 33 days and moved to a growing house. They are kept in batteries (steel mesh cages) during the 78-day growing period. During the first 33 days, eight pigs are allowed about 0.125 m2/head; thereafter this space allowance per head is increased to about 0.25 m2. Pigs are moved to the fattening house at about 111 days and remain there until they are sold at about 110 kg live-weight. After each batch has departed, houses are washed, disinfected, and rested for three to six days depending on the group size. Although the size of pig production complexes varies significantly from a few thousand to as many as 300,000 pigs per year, the system of production utilized in Romania is remark- ably standardized. The larger production units are different from smaller ones generally only in terms of scale of operation. At present about 6.5 million pigs are produced on large scale production units in Romania, implying that the technology employed is well understood and well tested. The proposed project (paras 19-24) would utilize this well established and proven system of production. Proposed Investments 19. The project would finance (a) about 39 large scale breeding/fatten- ing units; (b) about 106 farms for the production of crossbred gilts, (c) modernization of existing pig production complexes, and (d) facilities for expanding the national breeding program for purebred pigs based on performance and progeny testing. Model: Pig Breeding/Fattening - 32,000 Pigs/Year 20. Under the project, financing would be provided to establish an equiv- alent of 39 large-scale pig breeding/fattening farms. About 67% of these would be owned and operated by ICAs and about 33% would be owned and operated by IASs. The model would be used to develop farms producing 16, 32, 48, and 64 thousand pigs per year by halving or multiplying the model by 1.5 or 2 respectively. It is expected that farms producing 16, 32, 48, and 64 thousand pigs per year would be developed by IASs, and that farms producing 16 and 32 thousand pigs .ANNEX 4 Page 8 per year would be developed by ICAs. The main items financed would include pig buildings and ancilliary buildings, installations, and services; vehicles; and incremental working capital for two years to cover the purchase of breeding stock and start-up capital for pig feeds, drugs, labor, and other short-term inputs. For ICAs, the total investments for the model would be about 64.3 million lei (US$3.2 million). About 42.7 million lei (66%) would be for buildings and constructions; 21.3 million lei (33%) for incremental working capital, and about 0.37 million lei (0.5%) for vehicles and equipment. For IASs, the total investments per model would be about 60.2 million lei (US$3.0 million); incremental working capital would be lower by about 4 million lei due to lower input prices paid by IASs particularly for feeds. Investments per model would be phased over three years, and full production would be reached in the fourth year. Commitments would be phased over two years, 1977-78. Model details are in Tables 1-10. Model: Crossbred Gilt Production-960 Gilts/Year 21. Under the project, credit would be provided to establish equivalent of 106 farms for the production of crossbred gilts to be used as breeding stock for the breeding/fattening farms in and outside the project. Total production of crossbred gilts would be about 101,000 per year at full develop- ment (1981), which is about 10% of the total crossbreds required if the national breeding herd were to comprise only crossbreds. About 34,000 cross- breds (34% of project total) would be required annually for the breeding/ fattening farms included in the project. About 15% of these crossbred gilt production farms would be owned and operated by LASs, and about 85% would be owned and operated by ICAs. The main items financed under this component would include pig buildings; auxiliary buildings, installations, and services; vehicles; and incremental working capital for one year to cover acquisition of purebred breeding stock and start-up capital for pig feeds, drugs, labor, and other short-term inputs. For ICAs, the total investment per gilt produc- tion farm would be about 10.3 million lei (US$0.51 million). About eight million lei of this total (82%) would be for pig buildings and other struc- tures; about 1.6 million lei (16%) for incremental working capital; and about 230,000 lei (2%) for vehicles and equipment. For IASs, the total investment per gilt production farm would be about 10.15 million lei (US$0.50 million); incremental working capital is lower for IASs-by about 122,000 lei reflecting lower input prices particularly for pig feeds. Investments per farm would be phased over two years, 1977-78. Full development would be reached in the fourth year of the project (1981). Commitments would be phased over two years, 1977-78. Model details are in Tables 11-20. Renovation and Modernization of Existing Pig Complexes 22. Under the project, financing would be provided to renovate and modernize existing large-scale piggeries which had been constructed over the past 10-15 years. The main objectives would be to increase the stocking rate of existing houses which presently have old-fashioned, inefficient, internal layouts but which are well-constructed with many years of useful life remain- ing. Such investments would include: ANNEX 4 Page 9 (a) internal remodelling of gestation houses to permit the penning and feeding of each sow separately compared with the present practice of penning in batches. Individual penning and feeding arrangements are strongly advocated in modern pig husbandry and should result in improved sow performance. The area required per sow would be reduced from about 2.7 m2 to about 2.1 m2, or by about 21%; (b) internal remodelling of farrowing (maternity) houses allowing reduced area per sow and litter. The area per sow and litter would be diminished from about 7.47 m2 to about 5.66 m2 or by about 24%; (c) installation of batteries (steel mesh cages) in growing houses thereby reducing the space required per pig by about 29% (from 0.594 m2 to 0.424 m2) and thus enabling improved production performance (reduced mortality); (d) installation in fattening houses of mechanical conveyor systems for dry feeding with associated bins, feeding troughs, and complementary equipment. The system of feeding is well estab- lished in recently constructed complexes, and its adoption should reduce the level of feed wastage associated with the existing system of floor feeding; (e) additions and/or improvements to electric, heat, ventilation, and sewerage systems, and improvements in and extensions of manure disposal systems and waste water treatment plants; and (f) incremental working capital for increased stock numbers that can be carried, covering pig feeds and drugs. 23. One or a combination of the investment possibilities listed above would be provided for a particular complex as required. The main works involved would include tubular steel work, welding, concrete work, plumbing, and electrical work. It is expected that most of the work could be carried out by maintenance staff based on production complexes. This component would require careful evaluation and monitoring by BAFI to ensure that the proposed investments are financially sound. BAFI should ensure that in each case (a) incremental pig space provided through modernization would ultimately be cheaper than construction of new, equivalent capacity; or (b) modernization would be supported by realistic cost-benefit analysis. National Breeding Program for Purebred Pigs 24. Under the project, financing would be provided to extend and develop further the national breeding program for purebreds. Through this program superior sows and boars would be identified for economically important traits (e.g. fecundity, feed conversion efficiency) through performance and progeny testing (paras 2 and 3). Genetically superior purebred sows and boars would ANNEX 4 Page 10 then be supplied to crossbred gilt production farms to maintain purebred lines. An efficient selection program would facilitate constant improvement throughout the national pig herd thereby substantially benefiting the entire industry. Project-financed investments would be made in production units and supporting facilities to enable implementation of an efficient selection and improvement program. Accommodation would be provided for about 1,200 sows in one or more such units, based on the requirements of the entire breeding program. Before investments would be made for this component of the project, detailed proposals, together with their justification, should be submitted for the Bank approval. A specialist in pig genetics should visit Romania for one or two weeks to examine their ongoing breeding program and to recommend to Romania how the proposed investments should be utilized to achieve maximum benefits. Pig Research 25. Pig research is mainly concentrated in the Peris National Pig Research Station near Bucharest and in the Nutrition Institute in Bucharest. The Peris research station has about 80 technical staff members including about 25 resarchers with university-level training (about ten with doctoral training). It owns and operates a large pig production unit with about 1,500 sows that produces about 22,000 fattened pigs per year. The main areas of investigation at Peris include (a) nutrition and feeding; (b) environmental research; (c) production technology (e.g. different types of pig cages); (d) reproduction and fertility; and (e) breeding research with Landrace, Large- white, Duroc, Hampshire, and Yorkshire breeds. Peris is applied research- oriented with the objective of developing production systems that could stimulate production throughout the pig industry. Reflecting emphasis placed on inter-disciplinary research, multi-disciplinary teams are organized at Peris to carry out ongoing research projects. The following procedure is utilized for introducing newly developed technology into the pig industry: (a) the new technique or practice is investigated at Peris and recommendations are made; (b) further tests are performed on pilot stations owned and operated by MA; (c) additional testing is conducted on large IASs; and (d) adoption by the industry in general is sanctioned by MA if the practice has passed all three screening stages satisfac- torily. 26. There appears to be scope for improvement in the quality of research carried out at Peris. The production facilities, including pig houses, feed- ing arrangements etc., are designed to meet the needs of a large commercial pig farm rather than the needs of a pig research station. In particular, nutrition research seemed to be poorly organized and serviced. For example, Peris apparently maintains neither individual feeding facilities for growing ANNEX 4 Page 11 pigs nor facilities for conducting digestability studies on pig feeds. Part of the problem seems to stem from the division of responsibility between Peris and the Nutrition Institute for Nutrition Research (para 27). The recording systems, measurement, general levels of accuracy, care, and control exercised in carrying out operations do not appear to reflect the high standards nor- mally associated with quality research. The size of the farm (too big for research purposes) and the separation of piggeries and laboratories (about 1 to 2 km apart) would also account for many of the deficiencies observed. 27. The Nutrition Institute is part of the National Academy of Agri- culture. It has responsibility for conducting nutrition research for pigs, poultry, cattle, and sheep. It is a specialized institute engaged in more basic research having the following functions: (a) analysis of mineral-vitamin-protein premixes for all animal feeds utilized in the country; (b) monthly computer formulation of all rations to be fed to livestock in Romania on the basis of the inventories of available feeds; (c) improvement of feed preparation technology for such products as soybean meal, and investigation of feed quality problems associated with processing; and (d) analysis of the nutritive value of feeds and formulation of rations and feeding systems based on animal experimenta- tion. 28. The Nutrition Institute employs a high caliber professional staff and maintains good laboratory facilities. Pig feeding work is carried out in cooperation with the research station at Peris. This arrangement is not satisfactory because (a) Peris is located about 15 km from the Institute and (b) shared responsibility has not proven a good mechanism for conducting research. Consideration should be given to strengthening applied pig nutri- tion in the Nutrition Institute by providing it a separate breeding herd and production facilities as well as additional staff. A herd of about 200 sows would be adequate. An alternative approach would be to strengthen pig nutri- tion at Peris by transferring appropriate technical staff and removing pig nutrition from the terms of reference of the Nutrition Institute. Overall, the latter would probably be the best solution since it would be almost impossible for Peris to develop in a meaningful way without responsibility for pig nutrition. Another alternative would be to strengthen Peris and the Nutrition Institute accepting some measure of duplication. However, shared responsibility should be terminated. Veterinary Research 29. The Pasteur Institute in Bucharest is the main center for veterinary research as well as principal coordinating agency for all veterinary research carried out in Romania. It is responsible to the MA through the Agriculture ANNEX 4 Page 12 Academy of Science. The Institute has extensive, well equipped laboratories in Bucharest and owns three farms on which experimental animals are maintained. In addition, it operates three smaller field stations at lasi, Clug, and Arad. University veterinary faculties are also located in these towns. The Insti- tute has two main functions: (a) Production of all the biological materials (e.g. vaccines) required for veterinary use throughout the country; and (b) Conduct of research on infectious and nutritional diseases of animals, including pigs. 30. The Institute has about 120 research staff members and employs about 1,500 persons in total. Most of the general staff time is spent in producing biological materials (e.g. about 25 million doses of Swine Fever vaccine are produced each year). About 40% of the professional staff spend about 80% of its time on the production of biological materials and about 20% on research. Sixty percent of the staff spend about 80% of its time on research and about 20% in providing technical assistance to the veterinary services on specialized veterinary problems. The Pasteur Institute is a research organization of high caliber.providing useful service in an efficient manner. Veterinary Service 31. The MA Central Veterinary Dianostic Laboratory in Bucharest pro- vides a specialized diagnostic service to the district veterinary services, covering 39 districts and Bucharest. Ilfov District Veterinary Inspectorate is described below to illustrate the country-wide district veterinary organi- zation. 32. Ilfov Veterinary Inspectorate is responsible for implementing the Sanitary Veterinary Law (1964) which specifies the agency's duties and respon- sibilities. These main responsibilities include: (a) Operation of a veterinary diagnostic laboratory for the District as well as two small field laboratories. The main laboratory located outside Bucharest has a staff of about 14 including four veterinarians, one chemist, and two bio- logists. It handles about 20,000 diagnostic samples per year; (b) Provision of services to private farmers and cooperative members who maintain small livestock operations. Ser- vices are free and include the provision of medicines, drugs, advice, and on-farm animal manipulations and treatments; (c) Performance of all inoculations required by law; ANNEX 4 Page 13 (d) Provision of specialized services to large State and cooperative animal production complexes, including back-up laboratory services; and (e) Sanitary inspection and control of slaughterhouses and meat shops. 33. Veterinary staff assigned to large animal production complexes are technically and functionally responsible to the Veterinary Inspectorate but are paid directly by the production unit. The Inspectorate maintains a total staff of about 305 out of which about 200 are employed on these large animal complexes. Veterinarians are likewise posted throughout each district to provide field service for small producers. A horse and buggy are provided to enable on-farm visits at the village level within a radius of about 15-20 km. Risk 34. From a pig production standpoint the project is relatively risk free. The system of production in Romania is well established, and on the basis of 10 to 15 years satisfactory experience, can be considered proven. Since all prices are controlled by law, the risks associated with fluctuating feed and pig prices, normally found in market economies, do not exist in Romania (see Annex 2, Part II; economic risk discussed in Annex 10, para 7). Likewise, the risk of increased construction costs are virtually absent because of centralized price controls. In addition, model investment costs are based on the actual cost of establishing pig production units similar to those already constructed over the last few years. Satisfactory back-up veterinary and supply services are available. Although the financial rates of return (5 to 8%) are lower than those normally acceptable for pig projects, these do not indicate high risk since their level remains a function and product of the centrally controlled pricing system. The farm-gate price received for pigs in Western Europe (about US$0.90/kg live-weight) is about 50% to 70% higher than in Romania (US$0.53/kg live-weight for IASs and US$0.60/kg live-weight for cooperatives). Romanian production would therefore remain extremely competitive internationally even if producer prices were in- creased substantially. For example, an increase of 10% in the price received for pigs (Model: Pig Breeding/Fattening--32,000 pigs/year--Cooperative) would improve profitability (net income) by about 85%. Furthermore, the financial rates of return projected or achieved do not govern the level of investment in pig production which is established by law under the national planning system. ANNEX 4 Table 1 APPRAISAL OF PG PRODUCTION AND PROCESSING PRoJECT ROMANIA Model: Pig Breeding/Fattening - 32,000 pigs/year A. Projected Income Statement - State Enterprise YEAR 1 2 Et ' 4-20 - - - Lai '000-_ - REVENUES Cull sows/I - - 1,606 1,606 Cull boars72 - 78 78 Finished pigsL/3 - 22,874 35,972 Subtotal - 24.558 37.656 Operating Expenses Salaries - Professional and Technical/4 - 239 312 312 - Workers/4 - 661 1,983 1,983 Subtotal - 900 2,295 2,295 Social Security Fund/5 - 160 319 319 Feeds - Concentrates/b - 2,736 19,576 21,ZT - Green alfalfa7 - 104 208 208 - Fodder beet - 78 156 156 Feed carrots/7 - 162 325 325 Subtotal - 3,080 20,265 Drugs and aedicines/8 - 240 1,000 1,180 Maintenance and rep-ysfa - -.222 1.222 Overheads - Electricity - 536 1,072 1,072 - Boiler fuel - 235 469 469 - Insurance - 236 472 472 - Children's allowance - 81 162 162 - Protective clothing - 5 10 10 - Telephone and postage - 8 15 15 - Travel and subsistence - 10 20 20 - Tractor diesel and oils - 14 28 28 Subtotal - 1,125 2,248 2,248 Livestock - Gilts/10 - 5,793 2,025 2,025 - Young boars/l - 139 70 70 Subtotal - 5,932 2,095 2,095 Total - 11.437 29,444 316 = Net Income/12 (11,437) (4,886) 6.592 /1 Livewaight 175 kg/sow; price 10.5 Lei/kg. Z2 Liveweight 200 kg/boar; price 10.5 Lei/kg. /3 Liveweight 110 k6/pig; price 10.5 Lei/kg. /4 See Table 5 for details. 75 0.8% of total value of gross production including pig manure. 7 Figs 0-33 days - 2 kg 01 ration/head; pigs 33-111 days - 10 kg 01 ration + 42 kg 02 ration/head; pigs over 111 days - 70 kg 03 ration + 272 kg 04 ration/head. Sows - 310 kg 05 ration + 630 kg 06 ration/head/year; Boars - 1,100 kg 05 ration/head/year; replacement gilts and boars - 200 kg 05 ration/head. Ration 01 - 3,212 Leil/ton; ration 02 - 1,988 Lei/ton; ration 03 - 1,414 Lei/ton; Ration 04 - 1,268 Lei/ton; ration 05 - 1,253 Lei/ton; ration 06 - 1,253 Lei/ton. /7 2,597 tons Green alfalfa, 1,298 t. fodder beat and 1,298 t. carrots fed per year mainly to breeding'stock and including a small quantity fed to weaners (33-111 days). /8 Sow or boar 46 Lei/head; pigs 0-33 days 9 Lei/head; pigs 33-111 days 15.5 Lei/head; over 111 days 7.6 Lei/head. /9 3% of fixed investments. 10 Liveveight 95 kg/head, price 2,317 Lei/head. /11 Liveweight 85 kg/head, price 1,878 Lei/head. 712 Deficit for years 2 and 3 represents incremental working capital and is financed as part of the investment - See Annex 4, Table 3. February, 1977 APPRAISAL OF PIO PRODUCTIO4N AND PROCESSIM PROJECT ROMIA Model. Pig Breeding /Fattning - 32,000 Pig/year B: Projected CaBh Flov Statement - Ståte Enterprise 1 2 3 4 5 6 7 - 9 10 11 12 13 14 15 16 17 1- 19 20 ---------------------------------------------------------------------------- Ia ' ------------ - -------------------------------------------------------------- Cash Inflow Revenues -r -- 24,558 37,656 37,656 37,656 37,656 37,656 37,656 37,656 37,656 37.656 37,656 37,656 37,656 37,656 37,656 37,656 37,656 37,656 Long-te- Fndas (BAvi Yoan) 29,078 25,974 5,120 -- -- Short- and Ymdium-term oans 2 290 853 1,19 - -- -- - - Sale Value of Herd -- -- -- - - Total In1o. 29,368 26,827 30,876 37,656 37656 37,656 37,656 37,656 37.656 37.656 37,656 37.656 37.656 37.656 37,656 37.656 37,656 37.656 37.656 55,536 Ca.h Outflow Investmnt. 29,078 25,974 5,120 - - -- -- 350 --- C,"etl»gt 29o8 - 458 3,64 3,64 o101 104 3,64 31,01 31,064 3106 31, 3MA 31o6 31 31, Oper Epene - - 24,550 31,6 31,064 31,064 31,064 31,064 31,064 31,064 31,064 31,064 31,064 Interest aa 46 7 38 -Short- and edium-ter. L.an- 46 79 ,4 221 , 5 1. - long-term loans 290 1 1.152 2,4 2,23 2,11 1,971 1,79 7 1,41 1,32 11 4 O 63 3 3- 5 oan. Repaymente SShort/medium-tera l.n. 3- --- 400 600 650 691 -- -- - Long-term toana - - - 3,600 3,600 3,700 3,700 4,143 4,143 4,143 4,143 4,143 4,143 4,143 4,143 4,143 4,143 4,142 Total Outflow 29,368 26,827 30,876 37 3 3 ,60KW ^37,586 375V 6,999 36,6 36,698 36~M 35-71T W7-, 3,(35 35,W 35,70TI 3550 35,37n 3 r;,~4 Ca.h flow -- . - 93 - 70 202 65f. 792 98 .23U 939 1,455 1.621 1.786 1, 952 118 25 6.5T 24,472 Cash Flow foi Financial Rate of Return (29,078) (25,974) (5,120) 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 6,592 24,472 C. Projected Financial Rat, of Return Financial Rate of Return: 7.7% 11 2% auring conatruction, 4% after construction (after 3rd year), dlburnements are asaumed to be diatributed equally over the year, repnyment. to be made ou June 30. Finncing of Interest on long-ter lans due on Deceber 31, pluo capitalized intereat during year 2 and 3, during conetruction period. 4% payment. December 31. May 1977 APPRAISAL OF PIG PRODUCTiON AND PROCESSING PROJECT ROMANIA Model: Pig Breeding/Fattening.- 32,000 pigs/year D. Investments - State Enterprise Year 1 Year 2 Year 3 TOTAL Unit Cost No. of Foreign Foreign Foreign ForeBn. Unit Let '000 Units Exchange Total Exchange Total Exha e Total Local Exchange Total ------- ------ ------ ------ ---Le-----00 ---------------- - - - - - - - - - - - - - - Investment Items Buildings and Constructions: Roads, site levelling aul fences/ 10 682 26 171 -- -- 725 128 853 Boars/Sows mating and gestation house2 2.175m' 2,158 2 863 4,316 ---- -- -- 3,453 R63 4,316 Farrowing house/2 -do- 4,522 1 905 4,522 -- -- -- -- 3,617 905 4,522 Growing house/2 -do- 2,356 4 424 2,120 203 1,414 -- -- P,827 707 3,534 Finishing house/2 -do- 1,565.8 6 752 3,758 1,17 5,637 -- -- 7,516 1,879 9,395 Concrete platforms -- -- -- 44 297 45 297 -- -- 505 89 594 Pig loading ramp and scales -- -- -- 15 98 - -- -- -- 83 15 98 Electrical installations/ -- -- -- 90 1,320 290 1,320 -- -- 2,060 580 2,640 Heating installations 4 -- -- -- 440 2,000 85 390 -- -- 1,865 525 2,390 Water supply and drains5 -- -- -- 338 1,690 225 1,127 -- -- 2,254 563 2,817 Manure and waste disposal system6 -- -- -- 525 2,626 131 657 -- -- 2,627 656 3,253 General service building and facilities -- -- -- 66 332 -- -- -- -- 266 66 332 Veterinary building and facilities/S -- -- -- 9 41 38 189 -- -- 189 47 236 Feed storage facilities/9 200m0 612 1 49 245 73 367 -- -- 490 122 612 Subtotal L 4,822 rZF U 6 28,X7 Physical contingency 101 2 31 2 847 715 562 Layout of construction work -- 1,017 -- -- -- -- 1,017 -- 1,017 Design and technical supervision -- 271 -- 271 -- -- 542 -- 542 Subtotal 5,304 -V 1 -- 32,883 Vehicles and Equipment: Tractor Tractor 51 2 -- -- 52 102 -- -- 50 52 102 Trailers for feed transport Trailer 80 2 -- -- 80 160 -- -- 80 80 160 Truck (3 tons) Truck 70 1 -- 35 70 -- --35 70 Mobile pressure sprayer Sprayer 18 1 -- -- 10 18 -- -- 8 10 18 Base Price Adjustment /10 - 122 2 0 Incremental Working Capital 211-40P a4 1026 4886 12895 3,48 1 Total ~~~ ~~7U 5,381 M,93 r ~ ~ ~ , 1,15 6 7 I1 Access roads, site preparation, grading and finishing, peripheral and other fencing. 2 Including (a) electrical, heating, ventilation, sewerage, water, and feeding services and installations; and (b) appropriate sub-divisions and facilities for swine husbandry and management. Transformer house; transformer and generating set, transformer point, high and low voltage networks. Boiler room, coal house, boiler and pipe network. Including well, plumbing equipment, storage tanks and water reticulation. Includes pumping station, unit for partial separation of solids, concrete storage and drying pita for solid manure and oxidation system for waste liquid phase. 7 Administration offices, canteen, toilets and showers, and Laundry facilities. Including veterinary diagnostic room, laboratory, drug and medicine store, emergency slaughter room and butchers' equipment. Steel bins (3 x 47m3 and 3 x 20m3), meal elevator, two screw conveyors, reception hopper and concrete service platform. Base price adjustment calculated from information presented durina neeotiations reflecting price increases affected December 1976 of 4.8% ,From Annex 4, Table I - Projected Income Statement - State Enterprise.a May, 1977 1 ANNIX 4 APPRAISAL OF Table 4 PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Pig Breeding/Fattening - 32,000 pigs/year E. Herd Projection /1 Without --------------End of Year- ------------ Herd Comosition Project Year 1 Year 2 Year Year 4-20 Sows and Replacements 2,500 2,500 2,500 Boars T4 74 74 Pigs (0-33 days) 3,157 3,157 3,157 Pigs (33-111 days) 6,838 6,838 6,838 Pigs (over 111 days) * 1 715 13,056 13,056 Total Pigs 14,284 25,625 25,625 Total Births - 13,254 36,984 36,984 Purchases Gilts 2,500 874 8T4 Boars T4 37 37 .Total Purchases 5- 911 911 Mortality /2 Pies (0-33 days) 1,234 4,258 4,258 Pigs (33-111 davs) 310 1,581 1 581 Total Mortality -544 839 ttW; Sales Culled Sos - 874 874 Culled Boars - 37 37 Finished Pias - 1 c4 0-145 Tutal Sales - - 20,715 32,05 Technical (efficients Con'cetion Rate 71 71 71 Xum'er Boxn/Farrowing 9.5 9.5 9.5 Average Number of Farrowings/Fe-ale in Breeding Herd. 1.55 1.55 1.55 Sow Culling Rate/Year 0 35 35 35 Boar Culling Rate/Year % 50 50 50 Mortality % Pigs (0-33 doys) 11.5 11.5 11.5 Pig (33-111 days) 5 5 5 /t State enterprise or cooperative. Not inclw-Ld f'or nows, boars or pirocrilil dajysi because untrifty piis qre February 1977 ANNEX 4 APPRAISAL OF Table 5 PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Pig Breeding/Fattening - 32,000 pigs/year Table F. Staffing and Wages 1 Wage per Month Total per Year Category No. (Lei) ('000 Lei) 1. Management Staff Director 1 4,250 51 Chief Accountant 1 3,900 47 Economist 1 2,700 32 Cashier/Accountant 1 1,750 21 Lawyer 1 2,000 24 Marketing and Purchasing Officer 1 1,600 19 Storeman 1 17 Subtotal 7 - 211 2. Technical Staff Veterinarian 1 3,850 46 Veterinary Technician 1 2,350 28 Artificial Insemination Technician 1 2,250 27 Subtotal 3 - 101 3. Pigmen Pigmen (Breeding House) . 8 2,180 209 Pigmen (Gestation House and Boars) 4 2,180 104 Pigmen (Farrowing House) 12 2,180 314 Pigmen (Fattening Houses) 12 2,180 314 Shift workers 8 2,180 209 Night stockman 1 2,507 30 Subtotal 45 - 1,180 4. Auxiliary Workers Veterinary service 1 2,120 25 General services 2 1,905 46 Mechanics (installations) 3 1,978 71 Plumers 3 1,978 71 Stokers 3 1,978 71 Electricians 3 1,978 71 Veterinary workers (dosing, etc.) 3 2,307 83 Tractor drivers 3 1,978 71 Mechanic (power station) 1 1,978 24 General maintenance and sewerage 2 1,978 47 Butcher 1 1,709 21 Laundry 1 1,360 16 Technician (Waste water treatment plant) 1 2,801 34 Laboratory (Waste water treatment plant) 1 1,978 24 Mechanics (Waste water treatment plant) 3 1,978 71 General (Waste water treatment plant) 3 1,580 57 Subtotal 34 - 803 Total R9 2,295 1/ Same staffing for State Enterprise or Cooperative. February 1977 ANNEX 4 APPRAISAL OF Table 6 PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Pig Breeding/Fattening - 32,000 pigs/year A. Projected Income Statement - Cooperative YEAR 1 2- 3 .4 - 20 REVENUES Cull sovs 1,835 1,835 Cull boars/2 89 89 Finished pigs3 24,821 41,111 Subtotal -- ,745 43,035 Operating Expenses Salaries - Professional and Technical4 -- 239 312 312 - Wrkers4 -- 661 1,983 1,983 Subtotal -- 900 2,295 2.295 Social Security Fund/5 -- 123 1,20127 Feeds - Concentrates -- 3,7 24,374 26,692 Green alfalfa -- 104 208 208 Fodder beet/7 -- 78 156 156 Feed carrots7 -- 162 325 325 Subtotal -- 3,515 25,063 27,381 Drugs and medicines8 -- 240 1,000 1,180 Maintenance and repar-- --1222 1222 Overheads - Electricity -- 536 1,072 1,072 Boiler fuel -- 235 469 469 Insurance -- 236 472 472 Children's allowance - 81 162 162 Protective clothing - 5 10 10 Telephone and postage -- 8 15 15 Travel and subsistence -- 10 20 20 Tractor diesel and oils - 14 28 28 Subtotal -- 1,125 2,248 2,248 Livestock - GiltslO -- 5,793 2,025 2,025 - Young boars/L1 ** 139 70 70 Subtotal -- 5,932 2,095 2,095 Total - 11,835 35,213 38,048 Net Income/12 -- (11,835) (8,468) 4,987 1 Liveweight 175 kg/sow; price 12 Lei/kg. 2 Liveweight 200 kg/boar; price 12 Lei/kg. 7F Liveweight 110 kg/pig; price 12 Lei/kg. 7- See Table 10 for details 75 3.5% of total value of gross production including pig manure. Z7: Pigs 0-33 days - 2kg 01 ration/head; pigs 33-111 days - 10kg 01 ration + 42kg 02 ration/head; pigs over 111 days - 70kg 03 ration +272kg 04 ration/head. Sows - 310kg 05 ration + 630 kg 06 ration/head/year; Boars - 1,100kg 05 ration/head/year; replacement gilts and boars - 200kg 05 ration/head. Ration 01 - 3,482 Lei/ton; ration 02 - 2,307 Lei/ton; ration 01 - 1,783 Lei/ton; ration 04 - 1,675 Lei/ton; ration 05 - 1,594 Lei/ton; ration 06 - 1,594 Lei/ton. /7 2,597t. Green alfalfa, 1,298 t. fodder beet and 1,298 t. carrots fed per year mainly to breeding stock and including a small quantity fed to weaners (33 to 111 days). /8 Sow or boar 46 Lei/head; pigs 0-33 days 9 Lei/head; pigs 33-111 days 15.5 Lei/head; over 111 days 7.6 Lei/head. /9 3% of fixed investments. /10 Liveweight 95kg/head, price 2.317 Lei/head. I11 Liveweight 85kg/head, price 1,878 Lei/head. /12 Deficit for years 2 and 3 represents incremental working capital and is financed as part of the investment - See Annex 4, Table 8. AP1r9akSAL OF PG aoinCTION AM RCESSIc ROJECT K!!!HlIA Io4tJ Ft B tWadA/fatt%QinA - 32,000 pinelvear 8: Cash floy hoiactioa Cooativa Ges 1 2 3 4 5 6 7 a 9 10 11 12 13 14 15 16 17 Is 19 20 Cash Inflow-----------------------------------------------------------------------Lailow Revenues Funds 26,745 43.035 43,035 43,035 43,035 43,035 43,035 43,035 43,035 43,035 43,035 43,035 43,035 43.035 43,035 43.035 43,035 43.035 Lon-rert. Funds Li - Coop's own contribution 8,723 7,918 2,662 - BAFI Loan 20,355 18,h73 6,212 Short-and Medium Term Loans 305 894 1,282 Sale Value of Hard 20,434 Total Inflow 29383 27,285' 16,901 43,035 43035 43,035 43,035 43.035 43,035 43.055 43,035 43,035 43. 035 43.035 43,03 43.035 43,03 43,035 Cash Outflow Investment* 29,078 26,391 8,874 350 Operating, Ppenses -'26,745 38,048 38,048 38,048 38,048 38,048 38,048 38,048 38 ,048 38,048 38,048 38,048S 38,0408 38.048 38,048 38,048b 38,048 38,048 Interest i - On Short/Medium Ter. Loans 6 24 50 3, P- - On Long Term Loans 305 888 1,258 1,351 1,270 1,18( 1,102 1,010 918 827 735 643 551 459 367 275 184 92 Loan Repayments - Short-and Medium Term Loans 800 800 88- -Lona-Term Loans 2 1 1 2 0 2 3062 02 62 062 06 1058 Total Outflow _ 2 2 2 1 0 . 7 1 1 1 Cash Flow 8 10? AL 00 1 1. - X IM6 = 1.42 " I L& & 4" Cash Flow for Financial Rate of Return (29,07-) (26,397) (8,874) 4,987 4,987 4,987 4,97 4,987 4,987 4,987 4,987 4,637 4.987 4,987 4,987 4,987- 4,987 4,987 4,987 25,421 Ct Projected Financial R,ate of Return, financial Rate of Return: 5.01 /I RAFT 707, of Inv,estment cost, Coop 30,. WI L2 Due on Dacember 31.' 87 2 on Sho6t-Term Loans. 37, on Long-Tens Loans. 4 Al -(i1 + 82) g A4. L Financing of interest on long-tans loans and capitalized interest during years 2 and 3. Mly 1977 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Pig Breeding/Fattening - 32,00 pigs/year D. Investments - Cooperative Year 1 Year 2 Year 3 TOTAL Unit Cost No. of Foreign F ForeigForeign Foreign Unit zwi O'00 Units Exchange Total Exchange Total Exchange Total Local Exchang Total Investment Items Building and Constructions Roadssite_levueli and fences/ -- -- 102 682 26 171 32 ,48 8 Boars/Sows mating and gestation use2 2175- 2,158 2 863 4,316 -- 3,413 863 4,316 Farrowing house -do- 4,522 1 95 4,522 3,617 905 4,522 Goighouee2g -do- 2,356 V~ 424 2,120 283 1,414 2,97 707 Finishing house/2 -do- 1,1j65.8 6 52 3,758 117 5,637 50 6189 935 Concrete platforms -- -- 1 297 45 2973 Pig loading ramp and scales -- -- -83 1 2,5 Electrical installations - 290 1,320 290 1,320 8,060 580 640 Heating installation/ 8 220005 31,865 525 2390 Water supply and draina/ -- i6 -- 525 1620 1 1,127 -- -- 52817 Manure and waste disposal system/6 --55 2626 131 657 6-266 656 3,283 General service building and facilities/ .6 6. . 332 38 69 332 Veterinary building and facilitiea 9 9 38 189 -- -- 490 122 236 Feed storage facilities3 2 612 1 245 367 612 Subtotal 1,10 21 ~ ,2 -- 77 7,145 3562 Physical contingency 104 482 2 405 2 1157 -2,847 715 352 0,30 ~ -2- 12,T25 313? _T_, WW 3fA~~B Layout of constraction work 1,017 1,017 1,017 Design and technical supervision 271 271 54P 542 Subtotal 7 7- 2,55 UF2,997 3?- __TTff 4VO73 Vehicles and Equipment Tr-actor Tra3tor 51 2 --52 102 so 5 52 102 Trailers for feed transport Trailer 80 2 80 160 80 80 16o Truck (3 tons) Truck 70 1 35 70 35 35 70 Mobile pressure sprayer Sprayer 18 1 10 18 8 to 18 -- -- 177 356 1 -~ 73 17 Base Price Adjustment 10 225 1,332 250 1,209 85 406 2,357 590 2,947 Incremental Working Capital 11 -- -- 2,485 835 1,779 8,468 16,039 4264 20,303 Total5 5 Toa .59 2,7 5,468 26.391 1.864 8.874 5154 12,891 64,343 1 Access roads, site preparation, grading and finishing, peripheral and other fencing. 2 Including (a) electrical, heating, ventilation, sewerage, water, and feeding services and installations; and (b) appropriate sub-divisions and facilities for swine husbandry and management. 3 Transformer house; transformer and generating set, transformer point, high and low voltage networks. Boiler room, coal house, boiler and pipe network. 5 Including well, plumbing equipment, storage tanks and water reticulation. Includes pumping station, unit for partial separation of solids, concrete storage and drying pits for solid manure and oxidation system for waste liquid phase. /7 Administration offices, canteen, toilets and showers, and laundry facilities. Including veterinary diagnostic room, laboratory, drug and medicine store, emergency slaughter room and butchers' equipment. J9 Steel bins (3 x 47m3and 3 x 20m3), meal elevator, two screw conveyors, reception hopper and concrete service platform. Base price adjustment calculated from information presented during Negotiations reflecting price increases effective December 1976 of 4.8% /11 From Annex 4, Table 6 - Projected Income Statement - Cooperative. May 1977 ANNEX 4 APPRAISAL OF Table 9 PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Pig Breeding/Fattening - 32,000 pigs/year E. Herd Projection /1 Without --------End of Year----- ------- Herd Composition Project Year 1 Year 2 Year 3 Year 4-20 Sows and Replacements 2,500 2,500 2,500 Boars T4 T4 T4 Pigs (0-33 days) 3,157 3,157 3,157 Pigs (33-111 days) 6,838 6,838 6,838 Pigs (over 111 days) L.1l50 2.56 13.0s6 Total Pigs 1r,28K 25,625 25,625 Total Births - - 13,254 36,984 36,984 Purchases Gilts 2,500 874 874 Boars 74 _17 _3T 'Total Purchases - -, 911 911 Mortality /2 Pigs (0-33 days) 1,234 4,258 4,258 Pigs (33-111,days) 310 1 581 1 581 Total Mortality - - Sales Culled Soaws - 8T4 874 Culled Boars - 37 37 Finished Pigs - 19,804 31.145 Total Sales - - - 20,715 32,05 Technical Coefficients Conception Rate % 71 71 71 Number Born/Farrowing 9.5 9.5 9.5 Average Number of Farrowings/Female in Breeding Herd. 1.55 1.55 1.55 Sow Culling Rate/Year % 35 35 35 Boar Culling Rate/Year % 50 50 50 Mortality % Pigs (0-33 days) 11.5 11.5 11.5 Pigs (33-111 days) 5 5 5 /1 State enterprise or cooperative. 2 Not included for sows, boars or pigs ovr 111 days because unthrifty pigs are slaughtered for consumption. February 1977 APPRAISAL OF ANNEX 4 Table 10 PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Pig Breeding/Fattening - 32,000 Digsiyear Table F. Staffing and Wages 1/ Wage per Month Total per Year Category No. (Lei) ('000 Lei) 1. Management Staff Director 1 4,250 51 Chief Accountant 1 3,900 47 Economist 1 2,700 32 Cashier/Accountant 1 1,750 21 Lawyer 1 2,000 24 Marketing and Purchasing Officer 1 1,600 19 Storeman 1 1,40 1__ Subtotal 7 - 211 2. Technical Staff Veterinarian 1 3,850 46 Veterinary Technician 1 2,350 28 Artificial Insemination Technician 1 2,250 27 Subtotal 3 - 101 3. Pgmen Pigmen (Breeding House) 8 2,180 209 Pigmen (Gestation House and Boars) 4 2,180 104 Pigmen (Farrowing House) 12 2,180 314 Pigmen (Fattening Houses) 12 2,180 314 Shift workers 8 2,180 209 Night stockman 1 2,507 30 Subtotal 45 - 1,180 4. Auxiliary Workers Veterinary service 1 2,120 25 General services 2 1,905 46 Mechanics (installations) 3 1,978 71 Plumers 3 1,978 71 Stokers 3 1,978 71 Electricians 3 1,978 71 Veterinary workers (dosing, etc.) 3 2,307 83 Tractor drivers 3 1,978 71 Hechanic (power station) 1 1,978 24 General maintenance and sewerage 2 1,978 47 Butcher 1 1,709 21 Laundry 1 1,360 16 Technician (Waste water treatment plant) 1 2,801 34 Laboratory (Waste water treatment plant) 1 1,978 24 Mechanics (Waste water treatment plant) 3 1,978 71 Genernl (Waste water treatment plant) 3 1,580 57 Subtotal 34 - 803 Total 2,295 / Same staffing for State Enterprise or Cooperative. February 1977 ANEI 4 Table I1 APPRASAL OF PIG PRODUCTION AND PROCESSING PROJECT RcNANIA Model: Crossbred Gilt Production - 960 Gilts/year A. Projected Incom Statement - State Enterprise Lei '000 REVENUES Culled ao 1 -- - 149 149 Culled boar 2 - 11 11 Male weaners 3 142 810 810 Female weaaeraL - 14 216 216 Culled zilta4 - - 48 54 Crossbred gilte - - 2,099 2.220 Subtotal - 156 3,333 3,440 Operatin Expeases Salaries - Professional and Technical/j - 83 142 142 - WorksrsL6 - 157 371 371 Subtotal - 240 513 513 Social Security Fund7 - 39 77 77 Concentrate fee@ - 367 1.018 1,031 Drugs snd medicinesL - 42 92 92 Maintenance and repairs/lo - 2111 Overheads - Electricity - 99- 99 Fuel - 25 55 55 Insurance - 36 36 36 Children's allowance - - - - . Protective clothing - 2 2 2 Telephone and postage - 5 10 10 Travel and subsistence - 3 6 6 Tractor diesel and oils - 3 6 6 Subtotal - 124 -214 214 tock - GiltU - 545 219 219 Young boars12 - 30 15 15 Subtotal - $75 234 234 Total - 1.606 2.367 2.380 Net Income - (1,450) 966 1,080 1 Liveweight 175 kg/sow; price 10.5 Lei/lkS. 2 Liveweight 200 kg/boar; price 10.5 Lei/kg. 3 Liveveight 37 kg/head; price 16 Leilkg. 4 Liveweight 110 kg/head; price 10.5 Lei/kg. 5 Liveveight 95 kg/head; price 2,317 Lei/head. 6 See Annex 4, Table 15 for details. 7 2.5% of total value of gross production including manure. 8f Pigs 0-40 days - 3 kg 01 ration per head; pigs 40-120 days - 10 kg 01 + 45 kg 02 ration/head; gilts over 120 days - 70 kg 03 + 212 kg 04 ration/head; culled gilts over 120 days - 70 kg 03 + 272 kg 04 ration/head; replaceaent gilts and boars - 200 kg 05 ration/head; sow 300 kg 05 + 700 kg 06 ration/head/year; boars - 1,100 kg #6 ration/head/year. Ration 01 - 3,212 Lai/ton; ration 02 - 1.988 Lei/ton; ration 03 - 1,414 Lei/ton; ration 04 - 1,268 Lei/ton; ration 05 - 1,253 Lei/ton; ration 06 - 1,253 Lei/ton. /9 Sow or boar, 46 Led/head; pigs 0-40 days - 9 Lei/head;pigs 40-120 days - 15.5 Lei/head; gilts over 120 days - 7 Lei/head. 10 31 of fixed investments. 11 Liveweight 95 kg/head, price 2.700 Lei/head. 12 Liveweight 85 kg/head, price 3,000 Lei/head. February 1977 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Cross Breed Gilt Production - 960 Gilts/year B: Projected Cash Flow Statement - State Enterprise YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 --------------------------------------------------------------------------------------- L'OO-------------------------------------------------------------------------------------- Cash Inflow Revenue 156 3,333 3.460 3.460 3.460 3.460 3,460 3,460 3,460 3.460 3.460 3.460 3.460 3.460 3.460 3.460 3.460 3.460 3,460 Long-Term Funds (BAFI Loan) 81402 1,149 Short-and Medium Term Loans 84 9og Sale Value of Herd 1-2-0 Total Inflow 8 2702 3.333 3.460- 3,460. 3,460 3,460 3,460 3.460 3.460 3.460 3,460 3.460 3,460 3.460 3,460 3.460 3,460 3.460 4,670 Cash Outflow Investments 8.402 1,749 219 Operating Expenses 256 2,367 2.380 - 2,380, 2,380 2,380 2,380 2,380 2,380 2,380 2,380 2,380 2.380 2,380 2.380 L 380 2,380 Z 380 P.380 Interest - Short-and Medium Term Loans L3 10- - Long Ter Loans 84 186 406 393 366 339 311 284 257 231 203 173 149 122 68 h4 9 Loan Repayments - Short-and Medium lerm Loans -- 273 - Long-Term Loans L6 677 677 677 61 677 677 677 677 677 Total OutflowF16 XI 'A15 30738 2 Cash FlowU,Wb 30 3 - ,6g A 3.3% 3 IN 3,11 3,23, 3 066 2 277 13 37 64 92 119 146 172 200 11 59 3 335 3 3 l 2 290 Cash Flow for Financial Rate of Return (8,402) (1,749) 966 1,080 1,080 1.060 1,060 1,080 1.080 1,080 1.080 861 1,080 1,080 1,080 1,080 1,080 1,080 1,080 2.290A C: Projected Financial Rate of Return Financial Rate of Return: 8.1% L-1 2% duting construct ion, 4% afterwards (after 3rd year), disbureementa are aseumsed to be equally distributed over the year. interest due December 31. 0 41. 1_3 3 years grace; repayments on June 30. A~ Including sale value of Herd. may 1977 APPRAIBAL OF PIC PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Crossbred Gilt Production - 963 giltafyear D. Investments - Statq &2terprise Year 1 Year 2 Year 3 TOTAL Unit Coat No. of Poreign Foreign Foreign Foreign Unit Lei '000 Units Etchange Total Exchange Total Exch Total Local Exchange Total ---------------------------------------L.------------------------------------- - - - - - - ---e--000-- Investment Items Buildings and constructions Roads, aite levelling and fences1 -- -- -- 40 267 -- -- 227 40 267 Boar/asowa mating and gestation house2 760m2 973 1 195 9-- - -* -- 778 195 973 Farrowing hou 533m2 909 1 182 909 -- -- -- -- 727 182 909 Growing house2 629m01 9-- - - -- 727 182 909 Gilt house/2 6682 745 1 1 745 -- -- -- 9149 745 concrete platforms -- -- 40 267 -- -- -- -- 227 40 267 Pig loading rap and ecales -- -- -- 6 38 -- -- -. -. 32 6 38 Eleatrical installationI -- -- -- 157 714 -- -- -- -- 557 157 714 Heating installation4 -- -- -- 18 80 -- -- -- -- 18 80 Manure disposal systi . -- .. 148 742 -- -- -- -- 594 148 742 Waste water treatment p nt/6 -- -- --- 136 660 5- -- -- 566 136 680 Boiler room 87.e 312 1 62 312 -- -- -- -- 250 62 312 Coal store 120m2 90 1 15 90 - - -- -- 75 15 90 Ash store 60W2 12 1 2 12 - - -- -- 10 2 12 Veterinary building and facilities/7 9902 209 1 h4 e09 -- -- -- -- 167 42 209 Toilets and wash up facilities 9,2 13 1 2 13 -- -- -- 10 2 12 General service building facilities 162m2 240 1 48 240 4* 8- -- ** 40 240 Subtotal WlM-- -- - -'I Physical contingency 5% 71 360 -- -- -- -- 289 71 360 Layout of construction work 1--- 196 -- 196 Design and technical supervision .. 23 . -- -- 26 - 263 Subtotal if "" I Vehicles and equipment Tractor Tractor 51 1 -- -- 26 51 -- .- 25 26 51 Trailer for feed transport Trailer 80 1 -- -- 40 80 .40 140 so Truck (3 tons) Truck 70 1 - -- 35 70 - - 35 35 70 obile pressure sprayer sprayer 18 1 -- -- 10 18 -- -- 8 10 18 Subtotal -- -- T ME M m 2 Base Price Adjustment /8 71 385 21 80 -- -.92 465 Incremental working capitalL9 -- .. j .40 8.403 436 1.4 -- -- 8.149 2,03 10152 Access roads site preparation, grading and finishing, peripheral and other fencing. Including (a5 electrical, heating, ventilation, sewerage, water, and feeding services and instaflations; and (b) appropriate sub-divisions and facilities for swine husbandry and management. L Tranaformer house; transformer and generating set, transformer point, high and low voltage networks. Boiler and pipe network. Pumping station, unit for partial separation of solids, concrete storage and drying pits for solid manure. Oxidation system for waste liquid phase. Including veterinary diagnostic rooms, laboratory, drug and medicine store and incinerator. .Base price adjustment calculated from information presented durinn Nesotiations reflecting price increases effective December 1976 of 4.8%. /9 From Annaw 4, Table 11 - Projected Income Statement - State Enterprise. May 1977 APPRAISAL. OF ANNEx 4 Table 14 PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Crossbred Gilt Production - 960 Gilts/Year E. Herd Projection /l --------End of Year- ----- Year 1 Year 2 Year 3 Year 4-20 Herd Composition Sows and Replacements -202 202 22 Boars 10 10 10 Pigs (0-40 days) 338 338 338 Pigs (40-120 days) 615 615 615 Gilts (over 120 days) 216 2T5 2T Tt al Pi gs -__ 140 Total Births --3.275 3,285_Jfi Purchases Gilts /2 202 81 81 Boars /3 10 5 Total Purchases 212 4 mortali /4 Pigs (0-4 days) 184 410 410 Pigs (40-120 days) 3 137 13 Total Mortality 22 _V Sales Culled Sows 81 81 Culled Boars 5 5 Male Weaners 240 1,368 1,369 Female Weaners 24 365 365 Culled Gilts -41 46 Crossbred Gilts j - 905 958 Total Sales 2 Technical Coefficients Conception Rate ;o 80 80 80 Number Born/Farroving 9 9 9 Average Number of Farrowings/Female in Breeding Herd 1.8 1.8 1.8 Sow Culling Rate/Year %. 40 4o Boar Culling Rate/Year % 50 50 Gilt Culling Rate % (includes female veaners and culled gilts) 30 30 30 Mortality % -Pigs (0-40 days) 12.5 12.5 12.5 Pigs (40-120 days) 4.8 4.8 4.8 1 State Enterprise or Cooperative. 7 Purebred Landrace or Largewhite. /3 Purebred Landrace or Largewhite. 77 Not included for sows, boars or gilts over 120 days because unthrifty pigs are slaughtered for consumption. /5 Landrace x Largewhite or Largevhite x Landrace February 1977 ANNEX 4 Table 15 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: .Crossbred Gilt Production - 960 Gilts/year F. Staffing and Wages 1/ Wage per month Total per Year Category No. (Lei) ('000 Lei) 1. Management and Technical Manager 1 3,734 45 Economist 1 3,074 37 Pig breeding specialist 1 2,801 34 Artificial Insemination Technician 1 2,202 26 Subtotal 4 142 2. Pigmen Pigmen (Breeding and gestation) 3 2,180 78 Pigmen (Farrowing) 1 2,180 26 Pigmen (Weaning) 1 2,180 26 Emergency (stand-by relief worker) 1 .2,500 30 Subtotal 6 - -160 3. Auxiliary Workers Hygiene and sanitation 1 1,905 23 Veterinary work (dosing, etc). 1 2,356 28 Night stockman 1 2,391 29 Electrician 1 1,978 24 Plumber 1 1,978 24 Butcher 1 1,770 21 Electrician/Mechanic (Waste treatment plant) 1 1,978 24 General (Waste treatment plant) 2 1,580: 38 Subtotal 9 - 211 Total 19 513 1/ Same staffing for State Enterprise or Cooperative February 1977 ANNEX 4 Table 16 APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Crossbred Gilt Production - 960 Gilts/year A. Projected Income Statement - Cooperative YEAR 1 2 3 4-20 Lei '000 ---------- REVENUES Culled sowsll - 170 170 Culled boars2 -- - 12 12 Male weaners3 159 911 911 Female weaners/3 16 243 243 Culled gilts4 - -- 54 61 Crossbred gilts/5 -- -- 2,099 2,220 Subtotal 175 3,489 3,617 Operating Expenses Salaries - Professional and Technical6 -- 83 142 142 - Workers/6 157 371 371 Subtotal 240 513 513 Social Security Pund/7 54 108 108 Condentrate feed8 -- 472 1,256 1,273 Drugs and medicineal9 42 92 92 Maintenance and repairs/l0 219 219 219 Overheads - Electricity 50 99 99 Fuel -- 25 55 55 Insurance 36 36 36 Children's allowance - 15 29 29 Protective clothing -- 2 2 2 Telephone and postage - 5 10 10 Travel and subsistence - 3 6 6 Tractor diesel and oils - 3 6 6 Subtotal - 139 243 243 Livestock - Gilts/11 - 545 219 219 Young boars/12 - 30 15 15 Subtotal - 575 234 234 Total - 1,741 2.665 2.682 Net Income -- (1,566) 824 935 /1 Liveweight 175 kg/sow; price 12 Lei/kg. /2 Liveweight 200 kg/boar; price 12 Lei/kg. /3 Liveweight 37 kg/head; price 18 Lei/kg. 77 Liveveight 110 kg/head; price 12 Lei/kg. 75 Liveweight 95 kg/head; price 2317 Lei/head. /6 See Annex 4, Table 20 for details. /7 3.5% of total value of gross production including manure. 78 Pigs 0-40 days - 3 kg 01 ration per head; pigs 40-120 days - 10 kg 01 ration + 45 kg 02 ration/head gilts over 120 days - 70 kg 03 + 212 kg 04 ration/head; culled gilts over 120 days - 70 kg 03 + 272 kg 04 ration/head; replacement gilts and boars - 200 kg 05 ration/head; sows - 300 kg 05 + 700 kg 06 ration/head/year; boars - 1,100 kg 06 ration/head/year; Ration 01 - 3,482 Lei/ton; Ration 02 - 2,307 Lei/ton; ration 03 - 1,783 Lei/ton; ration 04 - 1,675 Lei/ton; ration 06 - 1,594 Lei/ton. /9 Sow or boar, 46 Lei/head; pigs 0-40 days - 9 Lei/head; pigs 40-120 days - 15.5 Lei/head; gilts over 120 days - 7 Lei/head. /10 3% of fixed investments. /11 Livereight 95 kg/head, price 2,700 Lei/head. /12 Livereight 85 kg/head, price 3,000 Lei/head. February, 1977 APPRAISAL OF FIG PRODUCTION AND PORCSSING PROJECT ROMANIA Kodel: Cros Bread 0lt Production - 960 Gilts/vesr 3: Cash Flow Protction/CooperatIy*a Complex YRAR 1 2 3 4 5 6 7 8 9 10 it 12 is 14 15 lb 1 18l 19 20-- Cash Inflow Revenues Revnu-esuFnsL - 175 3,489 3.617 3,617 3.617 3,617 3,617 3,617 3.617 3,617 3,617 3,617 3,617 3,617 3,617 3,617 3,617 3,617 3.617 Long-Term Funds L- - Coops Own Contribution 2,520 562 - 2AFI Loan 5,882 1,309 Short-and Medium Term Loans 88 198 Sale Value of Herd Total Inflow __22 33 3,617 3,jj 3617 7 3.617 3,617 3.61 .76. . Cash Outflow Investments 8,402 1,871 219 Operating Expenses 175 2,665 2,682 2,682 2,682 '2,682 2,682 2.682 2,682 2,682 2,682 2,682 2,682 2,682 2,682 2,682 2,682 2,682 2,682 Interest - On Short/Medium Te Loans 2 5 - On Long-Term Loans 88 196 216 209 19h 179 165 15D 136 121 108 93 79 65 50 36 22 7 loan Repayments - Short/Medium Te Loans 286 - Long-Term LoansrL- 48o 479 479 1.79 479 479 479 _.72 _I79 479 479 479 49 79 1.9 Total Outflow Lg .h 7 ,7 1 15 11o 3'2 1 i ,9 ,8 ,6 1 U 8 9 1 1 11 1320 422 15? 3,1 7 1 318 1940 20 Cash Flow - 318 217 262 277 36 10 7 38 1W 377 1 6 31 20 33 3 3 5,882 1. - - - 7 - - * - - - . -L ! -;- ..;- Cash Flow for Financial Rate of Return (8,402) (1.871) 82b ( 93. 935 93, 935 935 931 935 71( 935 935 935 935 935 935 935 2,216 C: protected Financial Rate of Return Financial Rate of Return: 6 31 1AF9 702 of Investment cost, Coop 301. /3 3%. L4 3 years grace. May lfftl APPRAISAL OF PIG PRODUCTION AND PROCESSING PROJECT ROMANIA Model: Crossbred Gilt Production - 960 gilts/year D. Investments - Cooperative Year 1 Year 2 Year 3 TOTAL Unit Cost No. of Foreign Foreign Foreign Foreign Unit i Units Exchange Total EKchange Total Excha Total Local Echange Total Investment--tems-------------------------------------------e----------------------------------------------- -ei--- Investment Items Buildings and Constructions Roads, sie levelling and fenceaL -- 40 267 -- -- -- -- 227 40 267 Boars/Sos mating and gestation houseL2 700m2 973 1 195 973 -- -- -- -- 778 195 973 Farrowing house2 533m 909 1 182 909 -- -- -- 727 182 909 Growing houaeL 629m 908 1 182 908 -- -- -- -- 727 182 9g Gilt house/ 668M 745 1 149 745 596 149 745 Concrete platforms -- -- -- 40 267 -- -- -- -- 227 4o Pig loading ramp and scales -- -- 3-- -- -- -- 26 Electrical installatioL -- - 157 714 -- -- -- -- 557 157 33 Heating installation -- -- -- 18 80 -- -- -- -- 62 18 Manure disposal syste -- -- 148 742 -- -- -- -- 594 148 742 Waste water treatment plantL b -. 136 680 -- -- -- -- 544 136 68o Boller room 17m2 312 1 62 312 -- -- -- -- 250 62 312 Coal store 120m2 90 1 15 90 -- -- -- -- 75 15 93 Ash store 60m2 12 1 2 12 -- -- -- -- 10 2 12 Veterinary building and facilitin99m 209 1 42 209 -- -- -- -- 167 42 209 Toilets and wash up facilities 9m 13 1 2 13 -- -- -- 10 2 13 General service building and facilities 16a2 240 1 8 240 -- -- -- -- 192 48 240 Subtotal 1----- -- 5,775 1,T2T 19 Physical contingency 5% 71 360 - -- 289 71 360 Layout of construction work -- 196 -- -- -- -- 196 -- 196 Design ard technical supervision -- 263 - 263 -- 263 Subtotal I1W 8-8 -- -- -- -- 6,59 5II Wdl Vehicles and equipment Tractor Traitor 51 1 -- 26 51 -- -- 25 26 51 Trailer for feed transport Trailer sO 1 -- 40 80 -- -- 40 40 80 Truck (3 tons) Truck 70 1 -- 35 70 -- -- 35 35 70 Mobile pressure sprayer Sprayer 18 1 -- 10 18 -- -- 8 10 18 Subtotal -- -- f-- -- 17 11 -T oase Price Adjustment / 72 384 22 86 -- -- 376 94 470 Incremental working capitalL -- .. 329 1,566 1L237 329 1 Total ..&2 Ttl1.567 8.402 462 1.871- - 8,244 2,029 10,273 1 Access roads site preparation, grading and finishing, peripheral and other fencing. Including (a) electrical, heating, ventilation, sewerage, water, and feeding services and installations; and (b) appropriate sub-divisions and facilities for swine husbandry and management. 3 Transformer house; transformer and generating set, transformer point, high and low voltage networks.' boiler and pipe network. 5 Pumping station, unit for partial separation of solids, concrete storage and drying pits for solid manure. Oxidation system for waste liquid phase. 7 Including veterinary diagnostic rooms, laboratory, drug and medicine store and incinerator. Base price adjustment calculated from information presented during Vegotiat4ons reflecting price increases effective December 1976 of 4.8$. From Annex 4, Table 16 - Projected Income Statement - Cooperative. May 1977